US embassy cable - 01ABUJA2787

C O N F I D E N T I A L ABUJA 002787 
 
SIPDIS 
 
 
E.O. 12958: DECL: 10/31/2011 
TAGS: EFIN, ECON, PREL, NI 
SUBJECT: NIGERIA: THE LATEST IN THE IMF SAGA 
 
 
REF: ABUJA 2301 
 
 
 1. Classified by Charge d'Affairs Timothy D. Andrews for 
Reasons 1.5 (b) and (d). 
 
 
2. (C) EconOff spoke October 31 to Ernest Ebi, Deputy 
Governor for International Operations at the Central Bank, to 
discuss the IMF program.  Ebi confirmed that the IMF had 
decided not to extend the SBA and that a new IMF team would 
arrive October 31 to begin discussions on a monitoring 
program.  On October 26, the IMF had dispatched Messrs. 
Goodall Gondwe and Hiroyuki Hino to convey this message to 
President Obasanjo. 
 
 
3. (C) According to British colleagues in Abuja, President 
Obasanjo agreed to discuss the details of putting in place a 
monitoring program, similar to (but not called) a Staff 
Monitored Program (SMP).  A monitoring program would only 
require approval by the IMF Managing Director, not the Board. 
 While it does not have the Board sanction it would carry 
with it the financial discipline of an SBA. 
 
 
4. (C) With a monitoring program in place, the IMF would then 
look to develop either a new one-year SBA or possibly a 
3-year Poverty Reduction and Growth facility program (PRGF). 
A PGRF is a concessional facility with 0.5 interest rate, 
with repayment of 10 years and grace period of 5.6 years. 
The key to developing a PGRF is for the GON to produce an 
IMF-approved Poverty Reduction Strategy Paper (PSRP). 
 
 
5. (C) However, a PRGF would require significantly more time 
to develop than a SBA.  Moreover, with the 2003 elections 
approaching, success over a 3-year period may be difficult to 
achieve and early success difficult to ascertain.  A new 
one-year SBA may be the best way to proceed as it could be 
put in place more quickly and is easier to monitor. 
Undoubtedly, the GON will push for a medium-term facility, 
such as the PRGF, that might allow the GON to initiate 
discussions on debt forgiveness with the Paris Club. 
 
 
6. (C) Without a SBA, the Paris Club is in uncharted 
territory.  A monitoring program does not necessarily provide 
the assurances on reform sought by the Paris Club 
governments.  Consequently, the Paris Club may need to 
reexamine the criteria for negotiating debt rescheduling 
agreements.  If negotiations are halted, Nigeria will face 
accelerated debt service payments in 2002. 
 
 
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Background 
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7. (C) In the August 2001 review of Standby Arrangement (SBA) 
the Fund found that serious macroeconomic imbalances had 
emerged in Nigeria over the last year. Inflation has 
accelerated to double-digit levels since August of 2000 
(19.7% in July 2001), and instability has prevailed in the 
foreign exchange market with the premium in the parallel 
market rising to 19%.  An index of the purchasing power of 
the Naira (a rough indicator of changes in competitiveness) 
has fallen to new lows as inflation has increased and the 
IFEM has remained static.  In September, the IMF had declared 
talks on the SBA to be inconclusive (reftel).   A high 
ranking GON delegation visited the IMF in Washington in 
September and convinced the Fund not to abandon the program 
entirely.  The GON also wanted the SBA continued until at 
least December; that now will not happen.  The SBA expires 
today (October 31). 
Andrews