Nigeria gets debt cancellation - but at what price?
10 November 2005Huge debt cancellation has been agreed for Nigeria - a welcome and long overdue step. But in order to get it, Nigeria has to pay up, and agree to outside 'monitoring' of its economic policies. What does it mean?
At the end of October 2005, the ‘Paris Club’ – a group of the 19 richest governments – agreed a deal to clear all of Nigeria’s debts to the club. These total more than $30 billion, and make up the vast majority of Nigeria’s debt. By April 2006, all of this debt will be cleared, with a cancellation amounting in total to $18 billion (approx £10 billion). Nigeria has been paying $1 billion a year in debt service to these governments: in future it will be able to spend this on its own priorities for education, healthcare (especially HIV / AIDS treatment) and infrastructure. The UK, as Nigeria's biggest creditor, will cancel £2.8 billion (about $5 billion).
What does it cost?
There is a big catch! This cancellation is huge, the second-biggest debt ever offered by the Paris Club, after that to Iraq. But after cancellation of $18 billion, Nigeria has to pay back the remaining $12.4 billion (approx £7 billion) over just 6 months. That is, it has to pay the creditors upfront vastly more than it will save – and more than the 2005 G8 debt deal will release in total in a decade. The money will come from Nigeria's savings from oil production - which had been earmarked for poverty reduction. One in five children in Nigeria dies before its fifth birthday, because of poverty. The UK's share of these payments from Nigeria is £1.7 billion, about $3 billion (compared to debt cancellation of £2.8 billion). Jubilee Debt Campaign is currently in touch with the UK government to find out if it is intending to return Nigeria’s money. What else does Nigeria have to do?
A further concern is that the cancellation depends on Nigeria accepting 'monitoring' of its policies by the International Monetary Fund (IMF). All too often in the past, this kind of 'monitoring' has in fact been a means for the IMF to exert control over a country's economic policy. Generally, it refuses to approve a country's policies - meaning that donors then stop debt relief and aid - unless they follow the pattern prescribed by the IMF: privatisation of services, cuts in spending, trade liberalisation and many other policies which have proved so damaging to poor people. This kind of control is not acceptable. Where did the debt come from?
Nigeria's huge debt comes mostly from old loans to former corrupt and oppressive regimes, or from the vast amounts of penalties, interest and compound interest imposed by creditors. These caused the debt to snowball far beyond the size of original loans. Since the current democratic government came to power, it has been paying off debt, and trying to negotiate an end to the debt burden. In 2004, it reported that Nigeria had had original loans of $17 billion, had repaid $18 billion, and still owed $34 billion. Given that most of Nigeria's debt came from reckless or unfair lending in the past, it can be classed as 'illegitimate'. That means it should not be demanded back at the expense of Nigeria's people today. All of the 'debts' to the UK came from government guarantees on private bank loans made before 1989. What next?
Jubilee Debt Campaign is lobbying the UK government to address these concerns.