Digging Deeper into the Debt Trap

No Comments » December 28th, 2006 posted by // Categories: Nigeria's Debt Situation

Digging deeper into the debt trap

The Punch, Wednesday April 27, 2005

Biodun Sonowo

According to popular American wisdom, when you are in a hole, stop digging. For it is self-evident that the further you dig, the deeper you sink into your own trap. How I wish Nigerian leaders could ponder this saying.

Nigeria has dug herself into a deep, dark hole via the debt trap. By December 2004, $34.5 billion was outstanding to external creditors on principal, interest, arrears and penalties. This, according to the Debt Management Office, should by now be over $37.5 billion. The problem is not, strictly speaking, the huge debt alone, but also the manner in which Nigerian officials have chosen (or not chosen) to tackle the problem.

Debts and deficits are problems which the world has come to live with. The world’s only super power, the USA, is also the world’s most indebted nation in terms of deficits and public borrowing. For Third World countries, debt is endemic and a particular holdover from the cold war era when ideological leanings divided the world. Then, the international capital was concentrated in one half of the world while the other half were beggar-borrowers.

There are many dimensions to the debt issue and several countries have adopted various strategies to throw off the yoke and its restraining influence on development. Two divergent strategies are salient. In the 1980s, communist Romania, mired in backwardness despite decades of communist rule and ineffectual subsidies from the defunct Soviet Union, turned to the capitalist West for help. In short order, the East European country had ratcheted up to $12billion in external debts.

Rather than wring his hands like Nigeria and ask for undeserved debt forgiveness, Nicolae Ceausescu, the dictator of the day, opted for repayment and a quick escape from the trap. For two years, the Romanian economy was geared towards one single purpose: to earn enough foreign exchange to pay off the debt.

He succeeded, much to the discomfort of western bankers and financiers and to the annoyance of world capitalism, for what Romania did, was to upset the intricate system of global finance.

By this, excess cash must be kept at work in poorer countries to achieve the twin objectives of earning profits through interests, charges and penalties; and to insulate the Western countries safe from too much cash that could fuel inflation and upset the steady growth of industry and services.

Ceausescu’s novel approach to solving the debt problem, though successful made him fatally unpopular at home and abroad. The western press vilified him endlessly and Newsweek magazine, seeking to outdo arch rival, Time, did an unflattering cover on him labelling him, “The last Stalinist.”

Move over to the western hemisphere, this time to Latin America, in Argentina ruled by generals and succeeding themselves by the cowardly route of coups, amassed up to $80billion in external debts to western creditors.

Several years of reforms from within and of IMF/World Bank restructuring packages did not help. In exasperation, the country repudiated her debts. It did not help and economic adversity brought her back to the negotiating table. Lately, Argentina has again disavowed her debts in a take-it-or-leave-it stance by which she intends to repay only a fraction per dollar, of her debts. The war between her and creditors is still on.

What of Nigeria? The world’s most populous black nation has followed neither the Romanian route nor can it creditably opt for rebellion, and appears to have no coherent strategy to speak of. Muhammadu Buhari, as head of state (1984-85), attempted (half-heartedly) to follow the Caesescu route by insisting on meeting all current debt repayment obligations, dedicating 44 per cent of expenditure to this effort. He was unpopular both with Nigerians who had to tighten their belts, and with the West who saw in his stance and in his rebuff of the IMF medicine, another irritant to the global financial system.

Last week, the British High Commissioner to Nigeria, put paid to the posturings of Nigerian officials and gullible Nigerians on the issue of debt forgiveness. There will be no such thing, he said, in appropriate diplomatic language. Nigeria is rich, endowed with natural resources that Japan that several European economies lack, and is currently earning bumper revenues from crude oil sales whose prices have remained high for two straight years.

More importantly, he reminded us of our addiction to corruption, waste and maladministration. If you doubt the envoy, look again; despite the trials of Wabara, Tafa Balogun et al, corruption is booming; waste and squandermania at all levels are going on especially by many state governors and mismanagement is writ large in the area of basic infrastructural facilities, and in the management of external debt.

The Nigerian government is digging herself deeper into the mire of debt by failing to meet current obligations, engaging in forlorn appeals for underserved debt relief and empty threats to repudiate, while failing to unleash productive forces by freeing the economy from the suffocating grip of corrupt and inefficient state monopolies in the power, oil and gas, and allied sectors.

Unlike 1980s Romania, which sacrificed comfort to repay her debts, or Argentina, locked in combat over her own debt or the austere Buhari, who met prevailing obligations, current debt obligations are not being met and the burden is getting bigger, not smaller.

Nigeria is in a debt hole; the problem is she won’t stop digging.

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