Needy Nigeria wins a line of credit it's turning its back on
Nigerian Finance Minister Chu S. P. Okongwu was clearly annoyed. ``The government,'' he boomed, ``has made it abundantly clear that Nigeria has no interest in borrowing from the [International Monetary] fund. I don't see why there is any confusion, unless somebody is making mischief.''
What prompted the outburst was a question from a Nigerian journalist about a so-called ``letter of intent'' Nigeria signed with the IMF last month. In theory, the letter opened up a line of credit with the multilateral monetary institution for some $750 million.
But Mr. Okongwu says Nigeria has no intention of actually borrowing any of that money. Indeed, he said, to do so would be political suicide at home.
The story behind the Nigerian public's dislike of the IMF goes back to the end of the 1970s, when corrupt and incompetent governments were piling up external debts that today amount to perhaps $20 billion. Much of the borrowed money was wasted.
When Mexico kicked off the developing-country debt crisis in 1982, Nigeria was also cut off from easy access to the international capital markets.
The nation's credit standing was already shaky. By 1982, the volume of Nigeria's economically crucial oil sales had dropped almost by half from its 1979 peak. Then the price of petroleum began its slump.
Facing a severe financial squeeze, Nigeria some four years ago began negotiating for an IMF loan. As usual when making such loans to nations, the fund sought economic policy changes aimed at bringing about an improvement in Nigeria's international payments situation. Otherwise, the IMF would have no hope of getting its money back within a few years. Nigeria would be still living beyond its means.
Nigeria not only faced a drastic reduction in its national income. It didn't like an outsider, the IMF, telling it how to reform.
Nigerians, only 26 years out of colonialism, are sensitive to any interference, as they see it, in their country's sovereignty. After a national debate over the desirability of an IMF loan package and its attached ``conditionality,'' Nigerian public opinion swung decidedly against an IMF loan. President Ibrahim Babangida terminated negotiations with the fund last December.
But Nigeria still needed money. Unpaid charges on its debts have been piling up. Imports were slashed from $15 billion in 1982 to $8.5 billion last year. Without new external funds, the Nigerian economy would stagnate. If it refuses to service its debts for long, Nigeria could find its assets abroad being seized by angry creditors.
Educated technocrats in the Nigerian government, moreover, knew full well that many of the IMF suggestions for economic reform were badly needed.
For example, the naira, Nigeria's currency, was highly overvalued. That was discouraging the export of Nigerian agriculture or other non-oil products. A licensing system restrained imports. But getting such a license was almost a guarantee of making ridiculous profits and an incentive for corruption. Imports bought cheaply could be sold dearly.
A conclusive factor was that neither foreign commercial bankers nor governments would lend Nigeria any new money or even reschedule old debts without Nigeria's getting a seal of approval from the IMF.
Basically, the world financial community had the upper hand. Unless the Nigerian government was willing to impose even greater austerity to balance its international payments and service its debts, it would have to get IMF endorsement of its economic programs.
To deal with domestic antipathy to the fund, the government decided to impose its own economic reforms. After years of discussions, Nigerian officials certainly knew what the IMF would expect. Indeed, the American-educated finance minister undoubtedly understood from his knowledge of economics what was basically needed to put the Nigerian economy in better shape.
But the drastic reforms are billed as Nigerian. How much advice IMF officials gave Okongwu along the way is between him and them. Fund officials at least try to keep their mouths shut to the press on such sensitive matters. They call the reforms a Nigerian program, and Okongwu heartily agrees -- and resents any suggestion to the contrary. As far as the minister is concerned, the IMF letter of intent was merely a review and vindication of his program.
``This is Nigeria's own path'' to exchange-rate adjustment and other policy corrections, he told a small group of reporters.
That path is rugged. Last Friday, the Nigerian government opened a second-tier foreign-exchange market. The naira immediately plunged 400 percent in value -- a drop that pleased Okongwu.
``This market was not imposed by anybody on Nigeria,'' he insisted.
The list of other reforms is impressive. Import licensing has been dropped and tariff policies altered. The budget was slashed. Price controls were ended. Many state enterprises are to be sold or folded. And so on.
With the blessing of the IMF won, Okongwu hopes to wrap up a debt package by the end of the year. Like most of such deals, it is complex. But he expects it to include $320 million in new money over two years from Nigeria's commercial bank creditors, $420 million from the World Bank as a ``trade policy and export development loan,'' some hundreds of millions in new trade credits from national export-import banks, and a rescheduling of a good chunk of the old debt.
This weekend the creditor banks meet in New York. The following weekend bankers and Nigerian officials will talk in London.
Whatever terms are negotiated on the loans, the money won't be cheaper than what Nigeria could borrow from the IMF. Nor would the IMF impose any tougher conditions than those established by the Nigerian government on the nation's economy. Many commercial bankers would have preferred to have Nigeria borrow from the IMF and lend less themselves.
But national pride will not be offended. And Mr. Okongwu has achieved some economic reforms that seemed politically impossible six months ago. Probably not a bad resolution.