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PROJECT TOPIC- DECISION MAKING AND EXTERNAL ECONOMIC RELATIONS IN NIGERIA: A STUDY ON THE PARIS CLUB DEBI’ (1999- 2005)

PROJECT TOPIC- DECISION MAKING AND EXTERNAL ECONOMIC RELATIONS IN NIGERIA: A STUDY ON THE PARIS CLUB DEBI’ (1999- 2005)

 

ABSTRACT

This research set out to investigate decision-making and cxternal economic relations in Nigeria: a study on the Paris Club debt. Looking critically at literature, one will notice different approaches and methodology.
The study attempted to fill the lacuna that exists in the literature, which is the role decision making play in debt issues especially as it concerns Nigeria Paris Club debt. The study evaluated the involvement of the international financial institution in debt management, which has affected the independent decision of dcbtor countries in their debt management. We also examincd the cxccptional treatment granted to Nigeria by the Paris Club as a
viable strategy for sustainable human development. . ‘To cmpirically investigate these, some questions wcrc formulated: I I] Does the involvement of inter~at ionalf inancial institution in debt management affect the capacity of dcbtor-nations to make independent decisions on the debt burden?
121 Is the exceptional treatment of Nigeria’s debt by the Paris club a viable strategy for enhancing sustainable human development?
To answer these questions two hypotheses were formulated.
(1 )The practice, by In ternatioiial Financial Instilutioizs, to project the interest of global capitalist “States in development assistance” appears to undermine the capacity of dcbtor nations to make independent decisions on the management of foreign debt.
(2)’L’he application of exceptional treatment by the Paris Club on Nigeria’s debt will likely repatriate investment capital to the creditor states and undermine efforts at poverty alleviatioii.
For clarification the study is divided into five chapters. Chapter one will examine the introductory and methodological aspect of the study. Chapter two will examine the history of external debt
i l l Nigcria, debt relief initiatives, analysis of debt -management and sustainability, and the Paris Club debt-rescheduling trap. In chapter three we will discuss the international financial institutions and their debt management initiatives like SAP, ESAP, IDA and MIPC. While chapter four examines the exceptional treatment granted to Nigeria by the Paris Club and its implications as a viable strategy for sustainable human development Chapter five is the summary, conclusion and ~.cconlmendationsA. t the end of our investigation we noted that:

(1) That contraly to the current orthodoxy that the major problems in debt issues are mismanagement, corruption, looting and fall in the international oil prices, it is the decisions of the Iiiternational Financial Institutions through their initiatives and conditionalities that actually increase and compound the
problems of any debtor nation in debt management.
(21 That the initiatives of the International Financial Institutions overrule in debt management, which seems to. contradict it, likc, debt repudiation or default.
(3)’I’hat according to all involved in the contraction, servicing, rcscheduling and relief of Nigeria’s debt by thc Paris Club, Nigeria needs outright cancellation than the exceptional treatment, which negatively affects the good implementation of genuine economic development.
(4) That the exceptional treatment helped in impoverishing Nigeria, and persistently squeezed Nigeria of its foreign reserve [oil windfall], that is for investment purposes.

CHAPTER ONE
1.1 INTRODUCTION

 

Debt in the developing world is principally a postcolonial economic phenomenon, which began to emerge in the 1960s. ~ o v c r n e k sto relievc the burdcn of dcbt emerged at the same time. ‘The meeting of the Argentine government with its international creditors in Paris in 1956, led to the formation of the “Paris Club” of official creditors, which still exists today (Gordon, 111 order to stabilize the financial system, the banks were
willing to lend large sums of money to the developing world with little regard to its ability to repay, which in a context of negligible , interest rates, governments were happy to accept.

The mid to late 1970s saw interest rates rise, while many resorted to borrowing more to service their growing debts, these included Nigeria. But the current international debt crisis formdly began on Friday, 13 August 1982 when the Mexican Finance Minister
amlounced that his country could not continue . to service its foreign debt as originally contracted. In the month that followed many other Third World Nations followed suit mainly in Latin America and sub-Saharan Africa.
To deal with these problems, the US government, after some consultations with its allies and International Financial Institutions, devised a basic strategy that was patterned after the Mexican experience, rescheduling of payments, usually with a grace period. Based on this strategy, three overlapping rounds of negotiations took place in 1982- 1985. During this period, thirty four countries in Africa, Asia, Latin America and Eastern Europe rescheduled loans with the commercial banks (Watson l986:43).

As noted by Kayode, (2005: I), debt issue is more political than it is.economic, the external debt of a nation is not just about bookkeeping. It is basically a central issue of the political economy. Contrary to the position that the matter is just an accounting problem, debt ought to be seen as one of the issues that define the relationship of Nigeria with the creditor-nations within the context of the world economy. Debt crisis can engender a political crisis in the debtor-nation.
Efforts at solving this debt crisis had not yielded any result until lately. The policy recommendations and conditiotialities by 1 hc International Monetary Fund (IMF), the World Bank and other international financial institutions/ experts have fared no better. They have rather exacerbated the problems debtor nations face (Egbunine, 1993:8). These institutions are used to exert political pressures 011 the debtor-nations, in that their decision overrules
any debtor country’s independent decision.

PROJECT TOPIC- DECISION MAKING AND EXTERNAL ECONOMIC RELATIONS IN NIGERIA: A STUDY ON THE PARIS CLUB DEBI’ (1999- 2005)

Debt Management Office Annual Report (DMO, 2001:28) rccorded that; Nigeria’s first meeting with the Paris Club to rcschedulc her debts was in 1986. The country met with the Paris Club again thrice, in 1989, 1991 and 2000 to renegotiate 2″”) 3rd and 4Lh rescliedulirlg agreements respectively. According to this report, the total debt stock owed to Paris Club by Nigeria amounted to US$ 22,092.93 million as at December 2001. Principal amount was US$21,923.72 million, interest payments of TJS$131.24 million. Debt service paid to Paris Club Creditors for 200 1 amounted to US$ 1,273.63 million. Debt service projections Ior 2002 were cstimated at US$ 2,060 million. Given prevailing resource constraints, Nigeria would only be able to pay a fraction of this amount. These will uiidoubtly result in accumulation of arrears and penalty.
The consequence of defaulting on the Paris Club agreement particularly with respect to the payment of agreed debt service payments is the continued inability of Nigeria to benerit from credit facilities, which lower the cost of doing business.
From the annual report and statement of accounts (DM0 2003:30), a total amount owed to the Paris Club stood at about US$ 27, 469.92 million or 83.45 percent of total debt stock as at December 3 1, 2003, comprising principal balance (not yet due) of US$ 24, 109.25 million, principal arrears of US$ 1,183.69 million, interest arrears of US $ 2’05.95 million and penalty of US$124.02 million of the total Paris Club debt. Compared to the value of
Paris Club debt in the year 2002 of US$ 25, 380.75 millioli, the value of Paris Club debt increased by about US $2,089.17 million , or 8.23 percent in 2003. I11 the Nigeria’s Paris Club debt, the Official Development Assistance (ODA) accounted for US $652.hlmillion in 2003 compared to US $ 964.09 million in 2002 while commercial debt accounted for the balance of US $26,817.31 million in 2003 compared to US$24,416.66 million in 2002.
The report I-ecorded that as in previous years and in accordance with Paris Club agreed minute, Nigeria had been negotiating on a bilateral bases with fifteen creditor,countries on the specific details of each agreement. The negotiation focused on the, final reconciliation of eligible debt as well as bilateral
negotiations on the specific terms of rescheduling the eligible debts, including the applicable interest rates.
Al last the Paris Club of Creditors has agreed to reduce Nigeria’s External debt stock by 60 per cent, the remaining 40 percent of the nation’s debt owed to the Paris Club is to be bought back by Nigeria through a discount window using the oil windfall. In view of the foregoing, we shall assess the involvement of the International Financial Institutions in the negotiations and decision making in debt burdens, its impact in the independent
decision of debtor nations. Also we will evaluate the exceptional treatment of Nigeria’s debt (debt relief) granted by the Paris Club, its implication to the sustainable human development.

1.2 STATEMENT OF PROBLEM

PROJECT TOPIC- DECISION MAKING AND EXTERNAL ECONOMIC RELATIONS IN NIGERIA: A STUDY ON THE PARIS CLUB DEBI’ (1999- 2005)

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