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Despite abundant
natural resources — especially oil — and the largest
population in Africa, Nigeria has languished economically for
decades. Years of government mismanagement, widespread corruption
and dependence on an uncertain oil market have left the giant
African nation with a massive debt burden that has severely limited
its ability to modernize.
For more than
15 years, the country has owed more than $25 billion to international
and commercial lenders. Just to pay the interest on the public
debt took 7 percent of Nigeria's economic output in 2002. Taken
as a whole, the debt — some $31 billion — represents
more than 71 percent of the country's entire gross domestic product.
 The
situation has so crippled Nigerian economic development that when
the average voter went to the polls in April 2003 to cast his
ballot in the country's presidential election, he was poorer than
the average Nigerian at the time of the country's independence
in 1960.
Nigeria's leaders have
struggled to develop the infrastructure for possible future development
while dealing with the debt burden.
"If I need $3
billion, you say all that I need to do is open my house to foreign
investment, you say the foreign investor needs infrastructure.
How do I provide infrastructure?" Nigerian President Olusegun
Obasanjo asked in 2001. "[T]he common denominator of virtually
all sub-Saharan Africa remains the unsustainable mountain of debts
that constrain development."
It was during a disastrous
four-year period in the early 1980s that Nigeria's debt exploded,
from $5 billion in 1981 to more than $25 billion in 1986. Most
analysts said the jump could be tied to three factors: a collapse
in oil prices, massive government spending and serious graft and
mismanagement by the military regime at the time.
In a 2003
report, the International Monetary Fund said the real problems
in the Nigerian economy began before the oil glut of the mid-1980s.
"The
origins of Nigeria's external debt problems date back to the policies
pursued during the 1970s oil boom that led to extreme vulnerability
to downturns in the oil price," the IMF reported. "Successive
governments emphasized heavy investment in public works, primarily
aimed at building import-substituting industries."
The IMF has
questioned not just investment in non-competitive industries,
but also exorbitant public programs as exemplified by the new
sports stadium completed in April. It is estimated to have cost
$472 million — more than is budgeted for either health or
education this year.
Despite their repeated
disputes over policy, Nigeria worked with the IMF to restructure
its agreements with commercial and international creditors several
times, the most sweeping in 1992. Even with these efforts, however,
the country made little headway in reducing the overall financial
burden: a decade later, the country's debt still hovers in the
$25-30 billion range.
The IMF also worked
with the Nigerian government to impose stricter fiscal policies,
repeatedly calling on the country's rulers to rein in rampant
spending and widespread corruption.
Efforts to reform the
government and stabilize the economy took a major step in 1999
with the election of a civilian government headed by Obasanjo.
Within a year, the new president created the Debt Management Office
to organize the loans Nigeria needed to pay back and to clearly
demonstrate the country's intent to tackle the debt.
In spite of these efforts,
government spending continued and international criticism mounted.
In 2002, the challenges of continuing debt payments and differences
with the IMF reached a crescendo.
In March, the country's
finance minister said Nigeria would end consultations with the
IMF, saying continued collaboration would threaten his country's
"political stability, democratic consolidation, credibility
and accountability."
"Nigeria does
not wish to continue with arrangements where only narrowly defined
macro-economic considerations come into play," Finance Minister
Adamu Ciroma said.
Although the
move alarmed some, it was Obasanjo's decision to suspend all payments
on its  current
debts in August 2002 that confirmed a full-blown debt crisis.
At the time,
Nigeria had only $8 billion in its reserves — a 20 percent
drop from eight months earlier — and the country was worried
that continued payment of its debts would further deplete its
funds. The central bank suspended payments as it attempted another
round of debt consolidation and refinancing.
The move diminished
investor and creditor trust in the Obasanjo government to pay
back current and future loans, thus limiting future access to
loans.
Throughout
the crisis, Nigeria has continued to work to solve its debt ordeal.
One such effort has been the country's attempt to buy back some
$2 billion in freely traded debt stock. The process allows a debtor
to purchase debt that a commercial bank or other creditor has
decided to sell in the open market. Often, as is the case with
Nigeria, the debt sells for less than its value — making
it a good investment if the debtor fulfills the payment of the
loan.
In November
2002, Nigeria entered into talks to buy the $2 billion for some
$470 million. But talks have languished as both sides attempt
to extract more concessions before finalizing a deal.
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By Lee Banville, Online NewsHour
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