NIGERIA: PARIS CLUB BILATERALS NOT READY BY XMAS:

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