Viewing cable 02ABUJA2707
Title: NIGERIA: THE PRESS GETS IT WRONG: NO DEBT PAYMENT

IdentifierCreatedReleasedClassificationOrigin
02ABUJA27072002-09-19 10:53:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Abuja
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 ABUJA 002707 
 
SIPDIS 
 
 
FOR DEPARTMENT, PLEASE PASS TO USTR, EXIM BANK AND USTDA 
 
 
E.O. 12958: DECL: 09/18/2012 
TAGS: EFIN ECON PGOV EAID NI
SUBJECT:  NIGERIA: THE PRESS GETS IT WRONG: NO DEBT PAYMENT 
MORATORIUM 
 
 
REF: A. (U) CLASSIFIED BY BRIAN BROWNE 
     ¶B. POL COUNS. FOR REASONS 1.5 B & D 
 
 
¶1. (C) Summary:  Recent press reports have incoreectly 
claimed Nigeria had stopped foreign debt payments. Central 
Bank of Nigeria Governor Joseph Sanusi, whose August 27 press 
statement was cited as the basis of the report, as well as 
other government sources, confirm that Sanusi was the victim 
of poor reporting.  Guided by the pragmatism that necessity 
impels, the principal GON mechanism for coping with revenue 
shortfalls to date has been delaying or reducing all payments 
(foreign debt included).  Moreover, official GON policy since 
1994 has been to put a $1.5 billion payment ceiling on 
foreign debt, with most of the shortfall being placed on 
Paris Club debt.  This policy, announced by Debt Management 
Office Director General Akin Arikawe last December, 
incorporated in the 2002 budget, and reconfirmed by Sanusi at 
his misinterpreted press briefing, has not changed.  In 
short, Sanusi reiterated extant policy.  This may not be the 
most welcomed news to Nigeria,s creditors who would like to 
see the GON become more forthcoming on debt payments. 
However, the reality that Nigeria will continue its policy of 
partial payments is better than a debt moratorium.  End 
Summary. 
 
 
----------------- 
What Sanusi Said 
----------------- 
 
 
¶2. (U)  The August 27 press briefing was Sanusi,s third 
Review of the State of the Nigerian Economy in 2002.  The 
principal topics presented were the drop in foreign exchange 
reserves (from US $10.27 billion in December 2001 to $8.29 
billion in the middle of July 2002) and an evaluation of the 
Dutch Auction System (DAS) re-introduced in late July to stem 
the hemorrhaging of foreign exchange. 
 
 
¶3. (U) Neither the GON "announcement" it would stop external 
debt payments nor the "warning" about external debt 
shortfalls  was carried in the Nigerian press.  Calls to CBN 
Governor Sanusi, CBN head of Research Joe Nnanna, and 
Director General of the Debt Management Office Akin Arikawe 
leave no doubt that the foreign correspondents misinterpreted 
Sanusi's statement. 
 
 
-------------------------------------------- 
Foreign Debt Payments - $1.5 Billion Ceiling 
-------------------------------------------- 
 
 
¶4. (SBU) Elaborating on Sanusi's press conference, CBN 
Research Director Joseph Nnanna told Econoffs that Nigeria 
planned to make full payment on the US $1.5 billion it had 
budgeted for external debt.  He insisted "We are obligated to 
pay it under the Constitution," a tongue-in-cheek reference 
to the impeachment argument by National Assembly members that 
President Obasanjo had not executed (spent) the entire budget 
they had passed. 
 
 
 
 
¶5. (C) Nnanna explained that $1.5 billion had been the 
ceiling for external debt payments that former military Head 
of State Sani Abacha had instituted in 1994.  Capping debt 
payments had been a popular move, one that neither the 
current President nor National Assembly dare rescind. To 
date, the GON has been keeping current on multilateral, 
non-Paris Club bilateral, and London Club debt (commercial 
debt that was restructured in 1992).  The GON has kept within 
its debt ceiling by paying an increasingly smaller portion of 
Paris Club debt, which accounts for roughly 78 per cent of 
its total foreign debt. 
 
 
¶6. (SBU) Nnanna emphasized that it was not only foreign debt 
that had not been paid during the first part of the year. 
The GON withheld salaries and pension payments and hewed the 
line on capital project expendituresduring the same part of 
the year.  "We will not spend money we do not have nor can we 
exceed the 12.5 per cent deficit financing agreement we have 
with the Executive."   Nevertheless, Nnanna believed that the 
oil revenues for Nigeria would begin a recovery. "Our oil is 
not sold on the spot market but on the three to six-month 
futures market. This spring we suffered from last fall's drop 
in crude prices but should see stronger income in the second 
half of the year." 
 
 
¶7. (C) Director General of Nigeria's Debt Management Office 
Akin Arikawe confirmed that reports of a debt moratorium were 
false. Nonetheless, Arikawe privately expressed concern about 
Nigeria's ability to meet the $1.5 billion dollar target and 
was openly frustrated with Nigeria's lack of success to date 
in winning debt concessions from the Paris Club nations. 
 
 
--------------------------------------------- --------- 
Foreign Exchange Reserves, Debt Payment and the Dutch Auction 
System (DAS) 
--------------------------------------------- --------- 
 
 
¶8. (U) Nigeria fell from a balance of payment surplus of 
Naira 51.1 billion in the first half of 2001 to a deficit of 
Naira 386 billion in the first half of 2002, reported Sanusi. 
 Much of that deficit was financed by drawing down foreign 
exchange reserves.  For the first six months of 2002, foreign 
exchange inflows totaled US $3.8 billion against $5.37 
billion in outlays.  Sanusi noted 80 percent of total 
official foreign exchange disbursements (IFEM) were spent on 
imports of goods, 30 percent of which were finished goods 
that could easily be produced in Nigeria.   He added that 
Nigeria,s foreign exchange position would have been worse, 
had the CBN not delayed payment on foreign debt. 
 
 
¶9.  (U) The CBN Governor defended the DAS as a necessary step 
in dealing with problems with foreign exchange reserves. 
Through the DAS, he said the parallel market premium had been 
significantly reduced.  Instead of setting off a continuous 
Naira depreciation and unleashing new inflationary pressures, 
the DAS had stabilized the Naira rate stabilized and eased 
inflationary pressures. 
 
 
¶10. (U) Sanusi blamed the vestigial parallel market premium 
on the "activities of tax-evaders and impostors who avoid 
tariffs through non or inappropriate documentation."  He 
further praised the DAS which "promotes openness and 
unrestrained transparency in the determination of the 
exchange rate.  More importantly, the CBN has firmer control 
over the amount of foreign exchange it offers to the market 
and is thereby placed in a better position to protect and 
manage the nation's external reserves." 
 
 
¶11. (U) Other highlights from the press briefing: 
 
 
-- Inflation on a moving 12-month average decelerated from 
18.9 per cent in December 2001 to a projected 15.8 per cent 
in July 2002.  The one-month inflation rate fell to 10.2 per 
cent in May 2002 and was expected to be in single digits when 
the final July numbers were tallied. 
 
 
-- Manufacturing utilization capacity in the first half of 
2002 grew to 40.1 per cent from 35.5 per cent a year earlier. 
 
 
-- Growth of the narrow money supply (M1) slowed to 5.5 per 
cent for the first half of 2002, within the programmed target 
of 12.4 per cent for the year. 
 
 
--------------------------------------------- --------- 
Sanusi Calls for Naira Based on Productivity of the Economy 
--------------------------------------------- --------- 
 
 
¶12. (C) Sanusi took a strong stand on the need to depreciate 
the Naira, an unpopular position with most Nigerians who 
"have been too sensitive for too long on the value of the 
Naira, forgetting that the value can only be the efficiency 
and productivity of the economy.  Our sensitivity to Naira 
exchange rates derives from our import dependency which is 
facilitated by earnings from oil.  It is not sustainable for 
Nigeria to use its earning from oil to create jobs in other 
countries." 
 
 
¶13. (C) Comment:  The GON continues to struggle with economic 
policy, but there are signs of progress.  For reasons of both 
fiscal discipline and political advantage, the Executive and 
CBN have held the line on spending this year.  That restraint 
has simultaneously exacted costs while also paying limited 
dividends.  For example, the sudden drop in the forex 
reserves was partially caused by the GON's fiscal discipline. 
 However, decline in forex reserves gave the CBN the 
political cover necessary to introduce the DAS which has 
resulted in a significant depreciation of the Naira.  And, 
Sanusi has taken another step forward by arguing for a 
further depreciation that reflects Nigeria,s true 
macroeconomic position. 
 
 
¶14.  (C) Read in its entirety, Sanusi,s statement indicates 
that the CBN, if not the entire GON, recognizes the need for 
fiscal and monetary reform.  We should encourage the CBN to 
take additional steps that bring the Naira rate more in line 
with market reality and to encourage the GON to meet its 
foreign debt commitment.  However, we must also realize the 
political constraints that make reform piecemeal, uneven, and 
often controversial.  Additionally, while we call Nigeria to 
task for what is not going right, we should equally 
acknowledge the attempts at reform it is making.  End Comment 
JETER