Debt Repudiation: Obasanjo's Nemesis

culled from GUARDIAN, March 19, 2005

Not to long ago, right inside Aso Rock, it appeared as if nemesis was on a revenge mission. The target of course was President Obasanjo, the chief occupier of the seat of government. The principal officials of the House of Representatives, led by the Speaker, Alhaji Aminu Bello Masari, had carried their agitation for the repudiation of foreign debts to Aso Rock and had presented to the president the earlier resolution of the House on the issue.

According to Masari, "Nigeria had so far paid over $40 billion on servicing a debt that was just $19 billion as at 1985". And as a rider, the Speaker added: "And we are not even paying the principal debt (yet)". As a result, said Masari, "We feel that the continuation of the payment is seriously hampering the delivery of goods and services in the country". In other words, according to the Speaker, the house had resolved that the Federal executive should henceforth put a stop to payments on the debts, since such payments "are to the detriment of the interest of Nigerians".

Based on the President's antecedent, one would have expected him to embrace this idea with open arms. He did not, and I was amazed. Rather in his response, the president resorted as usual to some empty rhetoric which, I think, was meant to bamboozle the law makers. Hear the President: "I do hope that our creditors and our friends in the international community will take note just as you and the government will take note that you have just fired the first shot. And have to take note. The second shot may even be a law. If it becomes law, there is no way that I can appeal to you because it has to be implemented. So, I will want to appeal to you...I take serious note of this motion and I am aware of your concern...I will put this point across to our creditors...as I go round".

Let me talk about the President's antecedent regarding debt repudiation before I come back to the technical issues involved in such action. In July 1990, during the launching of Dr. Ibrahim Ayagi's book: The Trapped Economy, Obasanjo, then an ordinary citizen and in the opposition, had declared in a presentation that "repudiation was the only practical solution to the nation's external debt burden, officially put at $31.9 billion". Put plainly, Obasanjo was saying then that the Nigerian government under Ibrahim Babangida should refuse to discharge or even accept or recognise the nation's debt obligation to other nations.

His reason? "With the present burden, the nation would find it impossible to bring the ailing economy out of the woods". Well spoken, and the views held strong attraction for opponents of the government then, especially when it was a known fact that we were devoting an average of a quarter or more of our foreign earnings towards debt servicing yearly. The situation, unfortunately, has remained almost unchanged up to now.

I saw Obasanjo then as playing politics with the fact of the matter, just as the present crop of men and women at the House of Representatives are doing. But do I dare say that it is good that the president is being made to swallow the same bitter pill he fed Babangida with. Now back to the technical issues involved in debt repudiation. First of all, I think it was simplistic for the president to question the yardstick used by the creditor-nations in granting Iraq and Pakistan debt relief - and leaving out Nigeria - as he did in his response to the issues raised by the members of the House that visited him. The President's attitude reminds one of a parable by Christ in the Bible, of a householder who went out early in the morning to hire labourers and agreed to pay them a penny a day.

In the afternoon he went out again to hire more labourers and promising them the same amount. Towards the close of the day, the man again went out and engaged some more labourers for the same one penny a day. At the end of the day's work, the man paid all the workers a penny a day as agreed, but the first set of labourers began to murmur and to question why the man should pay the last set of workers who only laboured for one hour the same amount as those of them that had laboured all day. To that, the householder fired back: "Friend, I do thee no wrong; didst not thou agree with me for a penny?..Is it not lawful for me to do what I will with mine own? Is thine eye evil, because I am good?"
Certainly, like the good man of the house in the parable, the creditor-nations have the right to show mercy on those thy think deserve their mercy, and it is not for Nigeria to question their line of action. In fact, if truly we want to be sincere with ourselves, with the way we flaunt our wealth all over the world, do we deserve any relief? I do not think so. A debtor owes an obligation to his creditor and is bound by law to honour his contractual agreement as and when due. Attempt by any or the parties to unilaterally alter the terms of the agreement under any condition amounts to a breach.

However, there are few instances where debtor-countries have been known to have outrightly repudiated their foreign loans, as the House is presently urging the president to do. Cuba did it in 1961 and North Korea in 1974. To unilaterally repudiate one's debts is not without a cost. The most common penalty against the defaulters is that they would be ostracised by the community of creditor-nations and refused access to the world's credit markers. That means the ostracised nations would only be allowed to trade with other nations on a cash-and-carry basis. And definitely for a highly import-dependent economy such as ours, that would be a suicidal option. The best option open to us is for the President, as he goes "round", to pursue the issue of rescheduling with the creditors rather than debt repudiation that carries high risks. He should forget about debt relief (forgiveness) for I doubt if any country would take him seriously on that.

*Edaghese lives in Lagos.