Nigeria Settles Paris Club Foreign Debt

Nigeria, a nation that ought to be a whole lot richer than it is, has come to a settlement with its Paris Club creditors. That makes it the first African nation to get its official debt off the balance sheet. It will still owe private creditors and the World Bank about $5 billion. Nonetheless, it is a fine beginning, and this time, Nigeria might just get it right.

There are two nations on the African continent that should be stinking rich, South Africa and Nigeria. In the case of the former, the mineral wealth under its soil formed the basis (along with racially based exploitation backed up by violence) of a vibrant, developed economy. In the case of Nigeria, the oil under its territory should have made the country a regional engine of growth. Corruption and government mismanagement have prevented that thus far – the current government, for example, is trying to get billions out of Swiss accounts that former dictator Sani Abacha is said to have salted away.

Of course, everyone wants to lend money to countries that have great economic potential regardless of whether the government and economic regime can handle repayment. So in the 1980s, Nigeria began to borrow, and by the 1990s, the debt and late fees on repayment had reached about $35 billion. A deal struck last year called for repayment of about $12.4 billion in cash in exchange for a $30 billion write-off. The second half of the money is supposed to be moved today.

The Paris Club is an informal group of financial officials from 19 wealthy nations that look after the government-to-government lending in the world economy. The London Club is a similar association that deals with debts owed by poor nations to private banks and such. The London Club part of Nigeria’s debt was unaffected by last year’s agreement and today’s transfer of funds. However, because there is a $30 billion write-off of Paris Club debt, these private creditors are much more likely to get paid a reasonable fraction of what they are owed. And oil at US$70+ a barrel doesn’t hurt Nigeria’s situation.

President Olusegun Obasanjo also has a string of privatizations up his sleeve along with some tax reforms. His big goal is greater transparency, and if he can tackle the bribe-ridden economic culture of Nigeria, that would be an added bonus. The nation has an opportunity for a fresh start that doesn’t happen very often. Most of the population survives on US$1 a day, and per capita GDP is only US$390. So long as the debt hung around Nigeria’s neck, that situation wasn’t going to improve – now it can if the Nigerians do things right.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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