Yesterday saw another major debt cancellation announcement. Not from the G8 this time, but from a shadowy cabal of supposedly democratic governments.
One of the many dreadful injustices tied into the current international debt situation is that indebted governments are not allowed to negotiate ‘en bloc,’ while creditors routinely gather into groupings to negotiate together. One of those groupings is the Paris Club, a group of creditor governments that meet in private to decide on policies towards bilateral debt. It has long been a hard organization for interested parties to penetrate, and is just one of many institutions that desparately needs to be opened up so that voters can scrutinise its proceedings.
On Wednesday, the Paris Club made a very welcome surprise announcement. In a press release they announced an agreement in principle to cancel loans owed by Nigeria, a country that has (for various reasons) until now been excluded from debt deals such as HIPC. The press release states that:
The announcement takes place after Nigeria has recently been declared eligible to IDA-only borrowing status and at a time when Nigeria has decided to renew closer relations with the International Financial Institutions.
(“IDA-only borrowing status” means that Nigeria’s credit rating is now considered particularly low, so they are only eligible for what “International Development Association” backed loans. I had hoped to link to the World Bank FAQs on IDA, but that page of their site is devoid of content…)
In September 2001, Jubilee Plus published a report by Kwesi Owusu titled “Drops of oil in a sea of poverty: The case for a new debt deal for Nigeria,” the forward of which stated that Nigeria owed a total of US$28 billion, around 50% of which was due to “a build up of arrears due to the inability to pay over many years.”
Yet despite that inability to pay and continually mounting arrears (the BBC currently estimate Nigeria’s external debt at $35bn), it has taken four years for any group of creditors to announce even this level of willingness to negotiate debt cancellation for Nigeria. Nigeria currently pays out six times the amount they receive in aid in debt servicing, but those payments are not making any impact on their total indebtedness.
What this announcement does not mean is that Nigeria will immediately receive debt relief. While the BBC may have decided on a headline of “Nigeria to get $18bn debt relief,” the package announced by the Paris Club is contingent upon Nigeria completing certain deals with the IMF (the terms of which are yet to become clear) and may well take some time to come through.
Where this announcement is significant is that it is a signal that creditor countries may be beginning to realise that HIPC is not good enough. There are many countries which do not yet qualify for HIPC, but which, like Nigeria, are in desparate need of debt cancellation if they are ever to start digging themselves out of poverty.
The fact that Nigeria alone owes nearly as much as the amount cancelled under the G8 Finance Ministers’ meeting (which is supposed to assist between 18 and 38 countries) will hopefully provide pause for thought about how much further they could have gone, but have yet to.