Pls take a look of the article again and again.Punlished in 2004 and culled by many respected journals outside Nigeria.Our debt was forgiven during OBJ regime now Nigeria debt is around $73bn .Can we pay ? .
Better Solution to Debt Relief Debate.
(From This Day (Nigeria) - AAGM)Byline: Olufemi AduwoThe debt crisis in many low-income countries has become a cause celebre for the media and international charitable organisations for good reason. Countries whose people have difficulty feeding themselves are finding it impossible to spur economic growth despite an infusion of fund from organisations such as the IMF and World Bank. They are barely able to pay the interest on their outstanding loans even using funds that could be better devoted to public health and education programme.Take Cote d'Ivorie, for example, inhabitants of this small country have a declining life expectancy that is already about 15 years below the average for all developing countries, and its literacy rate is 30 per cent lower than the average. Its per capital gross national product increased by only $45 in the 1990s. Yet in 1995, World Bank figures indicated Cote d'Ivoire spent over eight times as much to service its debt (which was more than double its GNP) as it did in public health and education. Despite a joint IMF World Bank debt relief programme, Cote d'Ivorie's debt remained one-half times its GNP, and debt service payments consumed 14.4 percent of the country's GNP in 1997. Heavily indebted poor countries (HIPCS) like Cote d'Ivoire are deteriorating under this increasingly onerous burden of debt service.The path from problem to solution is far from clear. For centuries, economists of every ideology (from Adam Smith and Karl Marx to Robert Barro and Joseph Stiglitz) have grappled with the question of what makes economies grow. One point they all agreed on is that when a country starts from a low level of economic development as influxes of investment can spark explosive growth if wisely utilised. This observation is the underlying justification for the billions of dollars developing countries have received in loans and grants from multilateral and bilateral sources. Unfortunately, providing money to these countries does not automatically translate into economic growth. Poor spending decisions, corruption and economic policies that undermine opportunities for growth frequently negate the benefits of loans and investment. Much more than these, are the intentions of the lenders, (creditors) which are one-sided benefiting.The IMF historic role is to stabilise the world economy. World Bank provides loans for infrastructure at low interest rates and on a long-term basis. The IFC invests in private sector projects with low percentage require. The IMF itself provides the loan for balance of payments deficits. The nature of its loan is short term. It has some laid down conditionality. The conditionalities make access to the loan difficult. One of the conditions is the programme supervision by the IMF Staff of the recipient economy policies.The external loan Nigeria obtained in 1978, was sourced from the money market in England. From 1980-1983 there was accumulation of foreign debt resulting from excessive issuance of import licences of goods and services in 1983, the letter or credit debts had risen to 12 billion US dollars. The figure was not verified but was accepted for redemption by the military government that came into power in the year. The credit was funded by each country's export guarantee organisation. These organisations refused to deal directly with the government of Nigeria but through the IMF, they insisted that IMF must approve the economic programme of Nigeria before they could reschedule Nigeria's debt. Nigeria's relationship with IMF is therefore based on the debt owed to the London and Paris clubs.Nigeria borrowed for Aladja Steel in 1980 and NEPA or ECN in 1978, talking of the Paris Club in particular, what Nigeria borrowed was only $3.5 billion we did not pay on time and unfortunately be compounding interest plus unpaid principal, this figure rose to about $5.8 billion by 1985 and by 1995 20.9 billion. How did this happen? We borrowed at certain level of interest which was about six to seven percent, sometimes in the 1980s, interest rate rose to 12 per cent and it was being compounded and if you borrow at compounded interest of 12 per cent, it doubles every five year practically, so in 10 years you have got four times what you owed. This is how we find ourselves where we are. There is fundamental inequity in this sort of thing, if I borrowed $3.5 billion and invested it in good business, what business will yield $21 billion in 18 years, the principle of borrowing is that you used the money, you pay back and you have something.The failure of traditional debt relief mechanisms to solve the debt problems of poor countries led the IMF and World Bank to create the HIPC initiative in 1996. The HIPC initiative offers to poor countries by rescheduling their debt when traditional debt relief measure proves in sufficient.In order to be eligible for HIPC relief, a country must qualify for World Bank concessional assistance, have an "unsustainable" debt burden after exhausting all other debt relief options, and maintain a track record of adherence to IMF and World Bank conditions agreed to in return for loan referred to as "Conditionality". The HIPC initiative was expected to provide an 18 per cent reduction in debt service due but most countries did not pay their obligations in full. According to the IMF " in comparison to the debt service paid prior to HIPC debt relief, the reduction is about two per cent on average... and some countries are expected to experience an increase in debt service due even after HIPC assistance. This relief feel far short of the expectations of debt relief proponents. The development committee of the British House of Commons characterised this initiative as merely a "re-arrangement of account" which fails to provide a permanent solution to the HIPC debt problem.According to Rev. Jesse Jackson, 'Debt burdens are the new economy's chains of slavery... remove the shackles from Africa, to guarantee life and opportunity to million of young children".The goal should not be debt forgiveness, but maximising the ability of heavily indebted countries to develop economically and socially. Forgiving debt can facilitate this goal, but will not achieve it without other measures. The single greatest determinant of future economic growth is a free market not the amount that governments spend. Thus to be successful, debt forgiveness must be accompanied by means to encourage countries to adopt economic reform, that increase the economic development, and measures to prevent a return to unsustainable debt levels through poor investment of borrowed funds. The most dependable way to ensure that HIPC adopts economic and institutional reforms is to require them to forgo future official credit in return for debt forgiveness. This will (1) provide a clean slate to allow poor countries to start fresh. In fact, foreign assistance has done little more than add to the burden many developing countries face by increasing their overall debt. The past loans did not generate sufficient economic growth to supply countries with means to repay them. Forgiving these ill-conceived loans would allow poor countries to focus their resources on development rather than reinforcing past errors in judgement made by the creditors.History indicates that foreign assistance has not helped nations develop. The study of London School of Economics concerning 92 developing nations 1997, found that "no relationship exists between the levels of aid and rates of growth in recipient countries". The argument that an aid cut-off would inevitably doom HIPCs to poverty is therefore a red herring. Access to private credit and investment will increase over time as countries adopt economic reforms experience economic growth and establish records of responsible debt management. There is ample evidence supporting this view. For instance, Hong Kong and Taiwan received little if any official assistance, yet they succeeded in outstripping large aid recipients in terms of economic growth by implementing economic and institutional reform.Debt forgiveness without instituting economic reforms in each country and altering the lending policies and tendencies of multilaterial institutions is a shortsighted and ultimately futile gesture. Even IMF acknowledge that inability debt management and denominating their debt in dollars or other currencies while their own currencies devalue is not the best way forward. The best solution therefore is a combination of debt forgiveness and termination of future economic assistance. This approach would prevent the accumulation of excessive debt and ensure that the market (a better judge of creditworthy projects and policies than that official creditors) is the determining factor in lending decisions. HIPCs need a remedy, not a short-sighted plan that foists the problem off on future leaders.
