NIGERIA: GON STRATEGY FOR THE U.S. BILATERAL PARIS

UNCLAS SECTION 01 OF 02 ABUJA 001215

SIPDIS


STATE PASS USTR, EXIM, OPIC
ABIDJAN ALSO FOR USED/AFDB


E.O. 12958: N/A
TAGS: EFIN ECON ETRD EINV PGOV NI
SUBJECT: NIGERIA: GON STRATEGY FOR THE U.S. BILATERAL PARIS
AGREEMENT


REF: ABUJA 1194



1. Summary: Director General of the Debt Management Office
(DMO) Akin Arikawe April 8 explained that Nigeria no longer
wanted to sign its bilateral Paris Club agreement with the
USG until negotiations (with more favorable terms for
Nigeria) were completed with the UK and Japan. Arikawe
stressed the logic of the GON's delaying tactics for Paris
Club Agreements, and repeated his interest in exploring
debt-for-nature swaps with the USG. End Summary.


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THE WAITING GAME
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2. Econ Officer April 8 called on DMO's Director General
Akin Arikawe to discuss the April 5 Supreme Court Decision on
Resource Allocation (reported reftel). Arikawe produced a
copy of a March 19, 2002 letter to Mrs. F. M. Yemidale,
Secretary of the Nigerian Debt Conversion Committee, from

SIPDIS
Michael Kaplan of the Treasury Department's Office of
International Debt Policy. Kaplan wrote, "there are some
outstanding issues that hinder our efforts to move forward on
the debt swap. U.S. and Nigeria have not yet signed the
bilateral agreement implementing the terms of the 2000 Paris
Club rescheduling for Nigeria. In addition, Nigeria has
accumulated payments arrears to the U.S. Government."



3. Arikawe saw the letter as a terse brush off, and that
Nigeria -- for ecological as well as political reasons --
wanted to pursue environmental debt swaps. EconOff reminded
Arikawe that Ambassador Jeter had already raised with him (as
well as the Minister of Finance and the Vice President) USG
concerns about delays with the bilateral agreement. If
Nigeria's real goals were debt rescheduling and eventually a
significant debt write off, current dilatory tactics holding
out for the most optimal term was costing the Nigerian
government money and the opportunity for progress on a number
of fronts including debt swaps.



4. The DMO DG claimed satisfaction with the USG terms on the
bilateral debt agreement, but did not want to complete the
agreement until Nigeria had reached better terms with the
U.K. and Japan on these debts. If the U.S. agreement were
filed in Paris now, the Europeans would insist on similar
terms. He noted the size of Nigerian debt to the USG was
relatively small, about a seventh the size of the UK's and
only half the amount owed to the Dutch, one of the smaller
European donors. He insisted terms of the agreement with the
U.S should not be the ruler by which the other agreements are
measured.



5. Arikawe felt the UK and Japanese agreements should come
soon. With the Japanese and UK on board in the near future,
and the German agreement already in the final stages, more
than 60% of the debt would have been negotiated. At that
point, Nigeria would look to finishing the U.S. bilateral.


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GON STILL WANTS DEBT FOR NATURE SWAP
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6. Nigeria was still very interested in a debt for nature
swap; Arikawe repeated his assertion that securing a
private-sector third party would not be a problem. He asked
that we contact Michael Kaplan and see if he could arrange
meetings at Treasury for Mrs. Yemidale on the margins of this
year's IMF/World Bank spring meetings. She wanted to begin
work on a Nigerian plan to be ready when, "in the near
future," Nigeria returns to normal relations with the Paris
Club and the IMF.


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JAPANESE AND UK PERSPECTIVES
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7. The Japanese Embassy informs us that an agreement on
Overseas Development Assistance (ODA) debt is ready to sign,
and they are preparing an Exchange of Notes to split that
agreement from Japanese commercial debt. This would allow
for a formal signing on ODA debt while the two sides continue
to negotiate a mutually acceptable interest rate for the
commercial loans.



8. A British High Commission Economics Officer reports
progress in negotiating interest rates and grace periods.
The remaining sticking point is Nigerian insistence on
applying payments to principal before interest. Arikawe told
UK negotiators that the GON would make payments only to those
countries with which it had signed bilateral agreements.
Were Nigeria to honor its debt payments in full, the UK would
receive $550 million this year. This obviously is not going
to happen, but the UK is inclined to "cut their losses and
move forward" with an agreement that brings in something.


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COMMENT
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9. In the wake of our insistence on adhering to the standard
terms of the bilateral agreement, the Nigerians evidently
have done a negotiation volte-face. Previously, Arikawe had
execution of the U.S agreement at the head of the list, now
it is the tail.


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WHEN MIGHT THE U.S. BILATERAL BE READY?
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10. The international donor community and IFIs are convenient
targets for venting nationalistic spleen, and President
Obasanjo has recently taken a few rhetorical shots at the IMF
in the local and international press. At the same time, one
of candidate Obasanjo's selling points in 1999 was his
stature with the international community. He may want to
package these mostly technical agreements as diplomatic
accomplishments in the build up to the election.



11. Even if the Administration wants to accelerate the
process, it may not go as fast as they want. On Christmas
Eve Arikawe held a press conference announcing signings with
three countries: Germany, Austria and Switzerland. Today,
two of those countries have still not signed. Added to this
is the DMO's new task of assigning external debt to
individual states (reported septel). Assuming Arikawe is
sincere that the GON will stop stalling as a tactic (which is
uncertain -- and certainly not within his control),his shop
may still lack the capacity to conclude agreements as quickly
as he may hope.


Andrews