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1/21/2019 "The Black Economy 50 Years After The March On Washington"

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Nigeria's Uphill Battle

Yesterday’s protests in Nigeria, in response to President Olusegun Obasanjo’s decision to end subsidies on petroleum products, is the latest page of the current chapter of Nigeria’s quest to establish itself as an independent nation. The people who filled the streets of Lagos did so in response to the rising gasoline prices that have resulted from Obasanjo’s decision. Obasanjo ended fuel subsidies in order to satisfy a condition demanded by the International Monetary Fund (IMF) in order for Nigeria to qualify for a $1 billion standby loan. The IMF loan, while only $1 billion, is critical to Nigeria because it would trigger other forms of international assistance. In addition to this, complying with IMF conditions is a key demand of Nigeria’s private, bilateral and multilateral creditors who are owed $33 billion.

The creditor nations and institutions are using the carrot of IMF aid to get Nigeria to commit to structural changes in its economy and the terms of its debt repayment. In fact a May 2000 document released by Chase Manhattan stated, “ Any IMF agreement is likely to include language encouraging the Nigerians to seek some form of voluntary restructuring…We also believe that a prior condition for the precautionary agreement will be that Nigeria appoints both financial and legal advisers to look at the possibility of restructuring the country’s commercial debt.” It is always enlightening to see a commercial bank so interested in the negotiations between the IMF and an independent country.

The Chase Manhattan document reveals that the bank’s interest lies in how it will be able to get its money back from the Nigerians. They want the debt to be rescheduled while Nigerians and other Africans desire for the debts to be forgiven. Of course commercial banks like Chase Manhattan do not desire for Nigeria’s debt to be forgiven and they are doing more than just hoping that the IMF loan can be used to persuade Nigeria to pay the banks back the billions it owes them.

But this arrangement between the IMF and the commercial banks has not been lost on all. Rep. Maxine Waters (D-Ca.), a member of the House Banking Subcommittee on Domestic and International Monetary Policy, issued a statement on Nigeria in which she stated, “ It should be noted here that debt restructuring- as opposed to debt forgiveness – will reduce Nigeria’s debt service payments but cause its external debt to accumulate. Without debt forgiveness, the Nigerian people – who have suffered tremendously because of the dictatorship of Sani Abacha and his access to Western financial institutions – will suffer even further.” Waters has advocated that if the U.S. and West are truly interested in helping a nation that has been its friend, it should forgive Nigeria’s debt rather than stretching it out so that a several creditors can be paid.

Two weeks ago the subcommittee on which Rep. Waters sits held a hearing on Nigerian issues in which the representatives of various perspectives pertaining to the country testified. Two members of the Clinton Administration, two Deputy Treasury Secretaries, William Schuerch and Steven Radelet delivered some of the most interesting testimony. The two delivered standard testimony to the subcommittee regarding the relationship between the U.S. and Nigeria but seemed to have been taken off-guard by how adamant Rep. Waters was in her questioning regarding how the Nigerian government had arrived at its official decision to accept a restructuring of its debt rather than debt forgiveness (which would totally eliminate its debt). The treasury officials initially maintained that President Obasanjo had written a letter to the Treasury Department that stated that he was in favor of a debt restructuring. The answer was disappointing to Rep. Waters who reasoned that no president in his right mind would prefer debt restructuring to debt forgiveness. Waters countered that she had a letter from Obasanjo that indicated that he desired debt forgiveness if that was possible and not a debt restructuring. Waters made it clear that she found the answers she received from the two officials to be disingenuous.

When Rep. Waters’ time for question and comment had ended she was immediately followed by Rep. Barney Frank (D-Ma.) who unleashed a blistering barrage of comments and questions for the Treasury officials who he accused of evading Rep. Waters central point by using “bureaucratic mumbo-jumbo”. Rep. Frank was successful in getting the officials to concede that, in fact, the Nigerian leader rather than debt restructuring and rescheduling had preferred debt forgiveness. Waters and Frank both expressed their disappointment that the U.S. had not agreed to forgive its portion of the debt and that it had not been more vocal in getting its allies in Europe to agree to forgive the debt that Nigeria owes them.

But the Clinton administration and the other creditors won’t budge. The stakes are too high. They want their $33 billion and will do what it takes to get it – even arranging for Nigeria to receive more money in aid and loans just in order to get Nigeria to agree to pay the original debt. And that is why the IMF is angling to get back into Nigeria after years of being rebuffed by Nigeria’s leaders – most recently Gen. Sani Abacha who died in June of 1998.

The IMF has not had a relationship with Nigeria since 1992, but since Abacha’s death, it has successfully made inroads with the country’s leadership which needs not only the quick finance that an IMF loan provides but also the seal of approval that a relationship with the IMF signals to segments of the financial community. Nigeria is only considering dealing with the IMF because it is desperately in debt. It has now gone to the IMF- the loan shark and international collection agency representing the creditor nations and institutions.

In order to see how influential the IMF has been in Nigeria even though no official agreement exists between the two parties, here are words from the testimony of Deputy Treasury Secretaries William Schuerch and Steven Radelet before the subcommittee on May 25, 2000.

The IMF has been working actively to support reform since the change in government in 1998. Last year, Nigeria agreed to a series of reforms under an informal “Staff-Monitored” program that was to help set the foundation for broader reform efforts. While there were implementation problems with this program, the progress that the Nigerians have made in the last year has provided the basis for negotiations of a formal program.

The Government of Nigeria and the IMF are now in the advanced stages of negotiating a one-year program, which targets many of the fundamental challenges Mr. Radelet has already addressed including better infrastructure, privatization, improved governance, and fiscal control. The Nigerian government has already made substantial progress towards reaching agreement on this program by adopting key reforms. As the press has reported, discussions are now focused on the budget. We look forward to these negotiations.

Unfortunately the Nigerian people do not share the Clinton Administration’s eagerness for the negotiation process that centers on the Nigerian budget. They now are paying higher gasoline prices because of the conditions the IMF is “persuading” Nigeria to take in order to win its favor. What Nigeria and Obasanjo are partially after from the IMF is revealed further in the Treasury duo’s testimony:

When an IMF program is adopted, the World Bank and African Development Bank will be prepared to propose a balance-of-payments loan in the range of $300 -$450 million. The World Bank will provide between $200-$300 million and the AFDB will provide around $100-$150 million to support the government’s Poverty Reduction Fund, which is designed to facilitate the monitoring of key development projects, and better target the most immediate developmental needs.

The Nigerian Government feels that it has no other choice but to agree to whatever conditions it must in order to get an additional short-term infusion of loans and aid. But it is a huge gamble that they are making -- going deeper into debt and more conditionality just to get out of an even deeper debt. It is the ultimate game of chess that Obasanjo is playing as he tries to raise his country out of the economic abyss and maneuver it out of debt. But at this point it is a game that he is playing on his opponent’s terms. And whether he is successful in the long-term or not, the short-term losers are already visible; they are the people of Nigeria who now have to pay more for gasoline.

Cedric Muhammad

Wednesday, June 7, 2000

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