US embassy cable - 01ABUJA3237

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 003237 
 
SIPDIS 
 
 
TREASURY FOR SONAL SHAW AND MATT TURNER; NSC FOR CATHY BYRNE 
 
 
E.O. 12958: DECL: 12/19/2011 
TAGS: ECON, EFIN, NI 
SUBJECT: NIGERIA: PARIS CLUB BILATERALS NOT READY BY XMAS: 
MAYBE BY SPRING BREAK 
 
 
REF: A. (A) STATE 210581 
     B. (B) ABUJA 2073 
     C. (C) STATE 140051 
     D. (D) ARIKAWE/SNOW LETTER OF DECEMBER 12 
        (FORWARDED BY FACSIMILE AND POUCH) 
 
 
1.  Classified by Ambassador Howard F. Jeter; Reasons 1.5 (b) 
and (d). 
 
 
2. (C) Summary: The Nigerian Debt Management Office (DMO) has 
not concluded any of its 15 pending Paris Club bilateral 
agreements.  The DMO has creatively used the comparability 
clause in the 2000 Agreed Minute to play creditors against 
each other in an attempt to gain grace periods, the right to 
designate how payments are credited, and the lowest interest 
rates.  This tactic has delayed negotiations, including those 
with the USG.   Embassy Officers have suggested to DMO 
Director-General Akin Arikawe and his boss, Chief Economic 
Advisor Magnus Kpakol, that they conclude the bilateral pacts 
as quickly as possible, though that may not happen until the 
second quarter of 2002. However, the GON negotiating tack 
might not be theirs to change as it seems directed by the 
President.  Obasanjo's personal attention to the negotiations 
indicates the issue is as much political as it is economic. 
The numerous unusual requests made by the GON represent his 
attempt to secure creditor treatment of Nigeria as a special 
case.  End Summary. 
 
 
3. (SBU) EconOffs met December 12 with Debt Management Office 
Director-General Akin Arikawe to receive the formal response 
(Ref D) to USG comments on the draft bilateral debt 
rescheduling agreement (Ref A).  Econoffs also conveyed the 
contents of Ref C that the USG would not support a meeting 
with the Paris Club until Nigeria completed bilateral Paris 
Club agreements and had an IMF program in place. Arikawe said 
Nigeria wanted the Paris Club meeting to inform the creditor 
countries that Nigeria would be unable to meet its $3.4 
billion debt payments for 2002 because the GON FY 2002 budget 
had allocated only $1.5 billion toward those obligations. 
Arikawe wanted to discuss how to apportion the money set 
aside in the FY 2002 budget for Paris Club debt.  He also 
noted that Nigeria could not pay any of the $290 million 
Paris Club debt that accrued from August to December 31, 2001. 
 
 
4. (SBU) The formal GON response to Ref C includes the 
following highlights.  The original letter (Ref D) has been 
faxed and pouched to EB/Monetary Affairs. 
 
 
-- The DMO's debt figures are now fully reconciled with USG 
figures. 
 
 
-- The GON asks that Article IV, Paragraph 4 be deleted 
because there is currently no post cut-off debt not included 
in the Agreed Minute. 
 
 
-- The GON asks that payments that fall due on a non-business 
day not accrue additional interest on that day (Annex G, 
Paragraph B.2). 
 
 
-- The GON requests a 30-day grace period before the accrual 
of additional interest, particularly because the GON tends to 
use third parties to effect payments, which sometimes causes 
a delay.  (Other creditors, according to Arikawe, have 
granted Nigeria grace periods between 15 and 30 days.) (Annex 
G, Paragraph E) 
 
 
-- The GON wants to determine how payments should be applied, 
i.e., whether payments would be applied first to the 
principal and secondly to late fees.  (EconOffs explained 
that standard accounting procedures do not allow for 
application of payments to interest before principal.) (Annex 
G, Paragraph B.3) 
 
 
--  The GON wants interest computed on a 360-day year, 
12/30-day month basis. (Annex G, Paragraph D.) 
 
 
-- The GON asserts that the debts covered by this agreement 
are now governmental, not commercial, and therefore should be 
immune from suit, judgement and/or execution. 
 
 
-- The GON requests a redraft of Annex G, Paragraphs H (2) 
and (3) to have the courts decide who pays legal expenses in 
disputes under the bilateral agreement. 
 
 
5. (SBU) Arikawe explained the delayed GON response to USG 
proposals was the result of Nigeria's comparability clause 
negotiating strategy.  The DMO is first negotiating specific 
items with creditors with whom the GON feels it will receive 
the most favorable terms.  The GON will then use the 
comparability clause to argue for more favorable treatment in 
all its other agreements. 
 
 
6. (SBU) Nigeria has not completed any of the fifteen 
bilateral agreements.  Arikawe hopes to complete bilateral 
agreements with Austria, Switzerland and the Netherlands 
before December 31, 2001.  He also anticipated that the 
agreement with Germany would soon be signed; the last 
remaining issue centered on the interest rate, he said. 
Arikawe explained that President Obasanjo had rejected the 
German agreement because the interest rate was too high (5.7 
percent versus the desired 5.3-5.4 percent).  (Comment: We 
understand that as of December 14, Germany has agreed to 5.3 
percent with an additional .5 percent administrative interest 
charge. End Comment.) 
 
 
6. (C) Comment: The Mission is concerned by this three-month 
delay.  The DMO, instead of using the bilateral agreements as 
technical stepping stones to comprehensive debt relief, 
appears determined to negotiate each agreement as an end unto 
itself.  After telling Arikawe that such delaying tactics 
could cost Nigeria goodwill in the Paris Club, EconOff 
brought the issue up with Chief Economic Advisor (CEA) Magnus 
Kpakol on December 14.  Kpakol promised to meet with 
President Obasanjo soon to discuss how to conclude the 
agreements more quickly.  Kpakol believed, however, that the 
agreements would not likely be completed before March 2002. 
 
 
7. (C) President Olusegun Obasanjo's personal attention is 
focused on this process, which means the issue has become 
just as much political as it is economic.  Obasanjo's 
estimation of Nigeria's and his place in the world indicate 
he believes Nigeria should receive special handling and not 
be treated as any other developing world debtor by Paris Club 
members.  Consequently, the unorthodox requests from Arikawe 
fit GON orthodoxy -- they want debt relief.  The numerous 
requests, in a certain sense, represent "debt relief through 
the back door."  Their aggressive negotiating positions are 
not taken just to reduce payments -- they fit Obasanjo's 
design to cajole his creditors to treat Nigeria as a special 
case.  End Comment. 
Jeter