NIGERIA: VICE PRESIDENT ABUBAKAR ON ECONOMIC ISSUES

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 000936

SIPDIS


DEPT FOR AF/W, AF/EPS, EB/OMA:ASNOW
LONDON FOR AFRICA WATCHER GURNEY


E.O. 12958: DECL: 03/22/2012
TAGS: ECON PREL EFIN NI
SUBJECT: NIGERIA: VICE PRESIDENT ABUBAKAR ON ECONOMIC ISSUES

Classified by Ambassador Howard F. Jeter; Reasons 1.5 (b) and
(d).



1. (C) Summary. In a March 19 meeting with Ambassador Jeter,
Vice President Atiku Abubakar was non-committal on rapid
completion of the bilateral debt agreement, saying only that
he would discuss the issue with the Director-General of the
Debt Management Office. The Vice President said Nigeria
remains committed to economic reform and will not run a
deficit this year. He argued that the IMF and GON had not
separated, but were on a temporary hiatus until Nigeria
formulates an achievable macroeconomic program. The Vice
President also endorsed USG long-term support for
agriculture, health and education. EconOff (notetaker) was
also present. End Summary.



2. (C) Emphasizing the need to conclude quickly the
U.S.-Nigeria bilateral rescheduling agreement, Ambassador
Jeter explained the USG could not amend the bilateral
agreement as its terms are applied equally to all debtor
countries. Despite the Embassy's good working relations with
the Debt Management Office (DMO),Director-General Arikawe
has been insistent on renegotiating the agreement.
Therefore, we have made very little headway on completing the
negotiation, the Ambassador stated. The Vice President made
no comment, but agreed to discuss the issue with DMO's
Arikawe. (Comment: We know Arikawe's stubbornness is the
result of a policy directive straight from the President to
negotiate better terms with every creditor. If we know the
President has taken a keen interest, Abubakar knows it even
better. Thus, his statement that he will talk to Arikawe is
a bit of a throw away. It is Obasanjo, not Arikawe, who
needs to be convinced. End Comment.)



3. (C) The Vice President stated that the absence of a formal
IMF program would not cause the GON "to reverse or slowdown
on economic reforms." Abubakar maintained that the IMF has
not "separated" from Nigeria, but will cooperate in
developing Nigeria's Poverty Reduction Strategy Paper and
supporting economic capacity-building. After the GON
develops its own macroeconomic program, the Vice President
said, they would enlist the help of the IMF to monitor the
homegrown program. Vice President Abubakar stated the
President would not severely limit government spending this
year because "too many Nigerians face social and economic
problems." However, both he and the President were committed
"to spending within our income and avoiding large deficits."
When asked about the problem of state government spending,
the Vice President responded that the Fiscal Responsibility
Act, based on Brazil's model and now before the National
Assembly, will provide a foundation for limiting states'
fiscal expenditures. The Central Bank's directive limiting
commercial borrowing by state governments also has reduced
the problem of fiscal irresponsibility.



4. (U) Ambassador Jeter related the recent visit of USAID
Africa Assistant Administrator Constance Newman to Nigeria.
He explained that USAID is moving from a transitional
strategy for the first two years of democracy in Nigeria to a
long-term strategy focusing on fewer sectors, such as
agriculture, health and education. Vice President Abubakar
welcomed this development, concurring that agriculture, in
particular, is a high Administration priority. The Vice
President explained that agriculture has been the primary
focus of the National Economic Council of State Governors,
which he chairs. State governments have primary
responsibility for agricultural development with the federal
government responsible for national policy and broad-based
programs that encompass more than one state, he said.



5. (U) The Vice President went on to explain that the GON and
State Governors have subdivided the country into sectors to
promote mass production of specific agricultural goods for
export. For example, Cross River State and the surrounding
area will target pineapple and palm products while northern
states will target gum arabic, groundnuts and tomato
products. Areas in the Middle Belt will focus on citrus
fruits.



6. (U) Ambassador Jeter encouraged the GON to focus on
industrial development, particularly in Kano, as a means of
providing employment in areas prone to social unrest. He
emphasized the importance of increasing domestic investment
as a means of signaling to foreign investors that Nigerians
themselves are serious about economic development. The Vice
President agreed, but lamented that high domestic interest
rates prohibit Nigerians from investing in infrastructure and
industry. To get around the high cost of borrowing, the GON
has persuaded commercial banks to earmark ten percent of
profits to support development of small- and medium-size
enterprises. However, this program has not yet taken-off.
As a means of sourcing lower-cost funds, Ambassador Jeter
described the U.S. Export-Import Bank programs available to
Nigerian investors who want to use American goods and
services for their projects.



7. (C) Comment. The Vice President's response on the
bilateral debt agreement indicates that he may not be
actively involved in this issue. This supports the DMO's
earlier assertion that each bilateral agreement must be
approved directly by President Obasanjo. Also, Nigeria may
no longer feel the urgency of completing the bilateral
agreements now that the IMF has withdrawn from a formal
program. Projected payments to the Paris Club, even under
the December 2000 Agreed Minute, will exceed the GON's 2002
budget for total external debt servicing. The GON will most
likely fall into arrears with the Paris Club notwithstanding
completed bilateral agreements.



8. (C) Comment Continued. The Vice President's statement to
continue progress on economic reform and to spend within the
revenue stream this year is a prudent one; however, he could
not reasonable be expected to say anything that strayed too
far from fiscal orthodoxy. However, other officials within
the GON and National Assembly have previously stated that
2002 spending may greatly exceed revenue; some observers,
including World Bank staff, predict the deficit may reach as
much as 20 percent of the eventual budget. Any shortfall in
revenue from the sale of NITEL will certainly have a
significant impact on government spending this year; the
auction price of USD 1.3 billion is nearly one-fourth of the
GON's projected revenue for 2002. Until the Executive and
National Assembly engage each other in the battle over the
2002 budget, it will be impossible to determine what course
of action will win out. End Comment.
Jeter