Paris Club and the Nigerian Debt.

Anthony Odiadi*.

Introduction.
The recent debt relief by members of the Paris Club of creditors to Nigeria1 is a major
development in the subject matter of sovereign debt restructuring and management. It
follows in the wake of Iraqi’s debt cancellation by the same official creditors which has
generated ample scholarly attention as to what guiding principles, if any, or the doctrinal
basis discernible in such a move.2 Market based strategies have been put forward
severally as a possible solution to Sub-Saharan African debt crisis without success. Such
strategies seems therefore to be gradually giving way to a realization that debt
cancellation is the next and only viable approach in the crisis management.3 In that
connection, the considerations for cancellation can range from odious debt to strategic
imperative or to contractual impossibility. Whichever, the effect of debt cancellation on
the debtor’s economy will surely be the same: that is, additional resources to the
country’s coffers. The fact that the Third-world debt has proved so glaringly
unsustainable using all economic parameters added to the sustained campaign by both the
debtors themselves and scores of sympathizers in the field brought enormous pressure on
the creditors to consider substantial debt stock cancellation.4 Sub-Saharan countries were
the first to be offered the relief package5 and shortly thereafter, Nigeria. The relief is
much a success for Nigeria, as it is for all those engaged in the campaign for debt
cancellation for Third-world and Sub-Saharan African countries6. The debt relief will

*
Solicitor, Visiting Scholar (2005), Georgetown University Law Center, Washington DC, B.Sc (Nig),
LL.B (Ife), LL.M (Lag) B.L. My sincere gratitude to Georgetown University Law Center, for the
opportunity.
1
Nigerian was granted debt relief on 29th June, 2005 terms of which is immediate payment of $6b arrears
on its $30b external debt amongst others; see note 7, infra.
2
See for example Gelpern A. ‘What Iraq and Argentina Might Learn From Each Other’ 6 C.J.I.L p.391
(2005)
3
Obadan M ‘Towards Nigeria’s Sustainable Debt Strategy’ p.203 THE DEBT TRAP IN NIGERIA (2003)
Ed Okonjo-Iweala et al
4
See for example, Jubilee 2000, Sachs J, Adams P, Center for Global Dev., Rieffel L, etc
5
There was a relief package decision taken on 11th June 2005, totaling $40b for poor Sub-Saharan African
countries.
6
Madavo C. ‘Debt Relief’ p.92 THE DEBT TRAP, supra, ‘calls for debt relief for developing countries
have been part of the international scene and the subject of conferences for many years. In the 1980s, when

Electronic copy available at: http://ssrn.com/abstract=1082592

further trigger new perspectives on the broad subject matter of sovereign debt
management as the idea of scaling back or reducing the debt stock of debtor countries
may prove the key, in the face of a clean plate, to putting in place effective methods of
borrowing and debt management methods by debtor countries.

Yet the relief is both a challenge and an opportunity, for the beneficiaries and equally so
for the benefactors, who stand at an advantage within the structure of international
finance, being in control of the capital and therefore able to make all the critical
decisions. As has been stated by a commentator, debt relief is ‘an extraordinarily
efficient use of aid resources. For countries with adequate policies and anti-corruption
efforts, debt relief automatically and predictably increases their ability to fund their own
programs without separate projects, reports, missions, contracts, or negotiations with
individual donors. For many countries, the prospect of debt relief -----creates an incentive
for government to act responsibly, particularly in the way they manage their economies in
order to become eligible.’7 Where debt relief exists as a definite possibility, most
governments would necessarily develop and follow economic reforms that can place
them in a position to benefit from it. Conversely, making the eligibility benchmark to be
so high can prove really counter-productive as most governments, as between the choice
of meeting the social needs of their citizens and servicing an external debt, would choose
the former. Specifically, the terms of the current relief to Nigeria by the Paris Club can be
summarized as follows–
i. 60% reduction of a total $30.515 billion owed to it by Nigeria on Naples
terms, which amount is $18.309;
ii. Immediate payment of the arrears of $6 billion;

large unpayable debts mostly owed by Latin American countries to commercial banks threatened the
functioning of the financial system, the international community responded with debt reduction schemes
such as the Baker and Brady plans to address the problem, and was successful. However, low income
countries with debt owed mainly to official creditors were largely left out. Those countries continued to
borrow, and in some cases their incomes failed to keep pace with their rising debt. Many of those countries
happen to be in Africa. Today the debt issue has become mainly an African one’; see also, Moss T
‘Resolving Nigeria’s Debt Through Discounted Buyback’ www.cgdev.org/ 04/2005
7
Birdsall N ‘Debt and Development: How to Provide Efficient, Effective Assistance to the World’s Poorest
Countries’ www.cgdev.org June 8th, 2005.

Electronic copy available at: http://ssrn.com/abstract=1082592

 iii. Remaining 40% of the debt stock –about $12 billion- to be settled by Nigeria
through a buyback operation8.
Of note in the package is that Nigeria will be treated using the Naples Terms. Also, the
country had qualified for International Development Association- IDA- treatment and so
would very easily go into debt buy back arrangement on very favorably discounted terms.
However, it must be stated early on, that, despite the seeming euphoria, certain aspects of
the terms of the debt relief package are considered by many to be onerous, ill-defined and
likely to work further hardship against Nigeria if allowed to remain. For example, the
demand for the immediate payment of $6 billion as a precondition for the relief would
create serious strains on the country’s already weak fiscal capacity as it is obvious that
she would be very hard pressed to mobilize such huge funds from its paltry resources.
That condition seems to suggest that the Club is by far eager to recoup, or get into its
pocket, as soon as possible, a good part of its expected income from Nigeria, even if by
some inducement, in exchange for an uncertain, problematic financial engagements with
the debtor country. The Club remains hesitant to give a conclusive statement as to
whether relief package is ‘based on Naples Terms’; it instead talked about the relief
package being ‘up to Naples Terms’. This may amount to needless bother about
meanings and words. But the difference is also obvious. The ‘Naples Terms’, is a very
comprehensive relief package which usually involves a debt reduction amounting to 67%,
as against the 60% offered Nigeria9. There is also, the unsettling fact that the entire relief
package is too lose ended, much of it, is still subject to further negotiation and
discussions. At any rate, the Club is not even bound legally by any of the ‘Agreed

8
Deduced from the statement issued by the Dr Ngozi Okonjo-Iweala, Nigeria’s Minister of Finance,
immediately after the announcement was made on June 29th, 2005. Below is an extract from the statement
released by the Paris Club with respect to the debt relief-
‘Creditors welcomed Nigeria’s willingness to conclude a policy support instrument-PSI, as soon as this
instrument is approved by the board of the IMF, to pay all it’s arrears towards the Paris Club creditors
and to treat them equitably. On this basis, this debt treatment would include debt reduction up to Naples
terms on eligible debts after reduction. This agreement would be phased in relation with the appropriate
IMF review under the PSI. This exceptional treatment of Nigeria’s debt would offer a fair sustainable and
definitive solution to Paris Club creditors and Nigeria. The significant debt relief would ensure long term
debt sustainability and would represent an important contribution by Nigeria’s Paris Club creditors to its
economic development. It would help Nigeria in it’s fight against poverty ’
9
See Dr Chu Okongwu, former Nigerian Finance Minister ‘Debt Relief? Nothing to Celebrate’ 3rd August,
2005 www.gcs-group.com; Editorial Guardian Newspaper-‘Debt Exit, Not Recolonisation’ 14th July, 2005
www.guardiannewsngr.com/editorial. etc, for some discussion on the issue.

3
Minutes’ and what was handed Nigeria is a mere statement of intent. That being so, the
final decisions are still far from being taken and the terms and conditions put forward as
well as the current euphoria may be premature after all.

Finally, following from all of that, there is the ‘implacable group’ for whom, no rational
basis exist to justify that a country that borrowed a total sum of $13.5 billion from an
entity some years earlier, and has since paid back the total sum of $42 billion as interests
and penalties, can be said to owe that same entity the sum of $30 billion. That then is the
ambivalent nature of the entire relief transaction, that regardless of the ‘financial
magnanimity’ the Paris Club may still have to brace up for fresh arguments and
justifications as to why it did not go so far as to give Nigeria a clean slate. As Lex Rieffel
stated not too long ago ‘most Nigerians and many NGOs would prefer a deal that
eliminates all Paris Club debt’.10

It is however not entirely out of place to presume and proceed with some analysis, while
the Paris Club gives a final word. Third-World debt and its place in global finance has
been the focus of considerable debate and research for sometime now. Ample efforts
have been deployed in the last two decades or more to somehow grapple with the
phenomenon and bring it under effective control without any visible success. The debt
continues to mount for the debtors while the expectations of the creditors have taken a
downward uncomfortable turn. The key players in the financial field are loosely
aggregated into what is now known as (a) the Paris Club and (b) the London Club. The
Paris Club evolved rather tentatively as an informal association from 1956 when a
collection of official creditors met in Paris to discuss the Argentine request for debt
adjustment. Ever since, it has worked its way as a veritable league of creditors providing
finance for poorer countries in need and pulling the levers, as it were, in the international
finance machinery. It also represents all official lenders, such as members of the OECD
(Organization for Economic Cooperation and Development), the World Bank, IMF and
other multilateral lenders. The Club affords bilateral lending between countries part of

10
‘The Paris Club Owes Nigeria A Fair Deal’ June 27, 2005 The Brookings Institution
www.brookings.edu/

4
which has enabled it have much of its wide reach as any such loan transaction comes
under its aegis. It has evolved through the years, certain operational rules that, for some,
seem all too arbitrary and domineering particularly for an entity that cannot be traced to
any enabling law or some legal charter for guidance. It is also an entity which tries to
project its lack of legal character by insisting that its terms of agreement lack legal force
and therefore not binding. However, the Paris Club has helped enormously in bringing
some order, predictability and organization in international finance and debt
management. It has provided a veritable framework for dealing comprehensively with
international debt issues, as effectively as the current approach permits.

The London Club, the other player in the field, also emerged in much the same way as
the Paris Club- ad hoc, informal, no rigid rules nor enabling charter, but started as Bank
Advisory Committee. These were a group of commercial banks dealing with loan issues
involving debtor countries. The Philippine’s inability to service its private debt in the late
1960’s led to an effort to evolve a framework for dealing with such situations. Like the
Paris Club, it has also over the years developed sets of rules encouraged often by IMF
and the World Bank as well as the members of the Group of 7 (8). And so by 1976 it
had in place a set of rules with which the Zairian debt crisis was dealt with. Dealing with
the London Club for debt rescheduling and restructuring has its own complexities
expectedly because it is usually a consortia of banks whose collective interest must be
aggregated to something fairly acceptable to all. Since most of the funds are private and
commercial, interest rates are hardly ever rescheduled. Also, considerations of comity
hardly play much role in decisions as in several cases dealt with by the Paris Club. The
‘comparative treatment of debtors’ a boiler plate provision in all Paris Club loan
transactions11 keeps commercial creditors of the London Club in tow as each
restructuring and rescheduling agreements is being worked out by the debtors.

11
‘In order to secure comparative treatment of public and private external creditors on their debts, the
Delegation of ------- stated that their government will seek to secure from external creditors, including
banks and suppliers, rescheduling or refinancing arrangements on terms comparable to those set forth in
this Agreed Minutes for credits of comparative maturity, making sure to avoid inequity between different
categories of creditors.’ quoted from Hudes K. ‘Coordinating of Paris and London clubs Rescheduling’
(1984-1985) 17 N.Y.U.J. Int’l L. & Pol. 553

5
Yet in all of that, the debt cancellation by the Paris Club for the countries poses fresh
challenges to debt management policies and strategies both for the creditor-entity as well
as the debtor country those benefits from it. Much, in the subsequent years, will depend
on how best each side adapts to the new situation (i.e. if debt relief program will be
sustained in the coming years) such as a complete policy rework on the part of the official
lenders of the Pars Club that would be more empathetic with the debtors inherent
financial incapacities in global finance and a more pro-active, goal oriented debt
management by the debtor countries, in this case, Nigeria and the other Sub-Saharan
countries. This article is divided into four parts; part two looks at the trajectory of evens
that has essentially contributed to Nigeria’s current debt situation (leaving aside the place
and dynamics of domestic debt); part three looks at the modus operandi of the Paris club-
its structure, institutions and approach and its connection with Nigeria’s external debt
management; part four examines the connection between the Nigerian home grown
initiatives and the final agreements with the club; part five examines the prospects for
the future vis-à-vis the sustainability of an efficient borrowing and debt management
policy; in part six, the conclusions.

2. Nigeria’s Economic Journey.

Nigeria, like other countries just emerging from colonial experience was persuaded into
external borrowing by international banking officials and multilateral lenders in other that
she should have additional resources for her developmental objectives. Nigeria had a
turbulent six years of civilian rule immediately after independence in 1960, followed by
complete military siege, starting with the coup de’tat of 15th January 1966 which led the
country to the secessionist war of 1967. At the end of that war in 1970, Nigeria had lost
so much. Scarce resources had been diverted to prosecuting the war, while basic
infrastructure and public utilities had completely deteriorated. And so, the country
naturally, was under intense pressure to embark on post war infrastructural
reconstructions development. However, despite the war Nigeria had negligible external
financial obligation, in fact, less than one billion dollars official debt.

6
In the subsequent years, using a fixed exchange rate, successive governments focused on
economic programs based on the import-substitution model to build industries and
several public utilities all financed by earnings from crude oil sale. Earnings from other
sectors that had been part of the economy fell drastically, particularly, agriculture which
had been the main source of income for the country prior to the discovery of crude oil.
Other economic factors, abuses inclusive, led to increased demand for foreign currencies
like the dollar and the sterling to finance the import of goods and materials, resulting in
several distortions in the implementation of the import substitution program.

Much of Nigeria’s external debt was contracted in the late seventies and early eighties,
by which time oil export receipts had declined by almost seventy percent due to the
global glut in production and export. Most of the contracts were poorly negotiated, ill-
understood and poorly implemented due to inherent weaknesses and several other
doctrinal issues, as well as, certain disabling circumstances of the process.12 There were
numerous sub-national borrowings and by several government corporations,13 most of
which were far from viable economically requiring nonetheless federal guarantees and
insurance from official export credit agencies. By the late eighties with the commercial
loans, the LIBOR had spiked to almost 15% an in consequence pushed up that category
of debt by several folds. Generally, poor borrowing strategy and management of funds,
limited technical skills, poor project implementation, followed by inability to keep up
with the huge debt service that ensued, all played a role in further compounding the debt
problem. Some of these were no doubt due to events in the international scene- events
never earlier anticipated. Subsequent borrowings pushed the total debt stock from about
nine billion dollars in 1980 to around twenty billion dollars in 1987.

12
The problems with the debt contracts have been examined in greater details by several commentators,
viz, Sylvester J. H. ‘Impracticability, mutual Mistake and related contractual Bases for Equitably Adjusting
the external Debt of Sub-Saharan Africa’ 13 Nw. J. Intl. L. & Bus (1993-1993), Lothian T. ‘The Criticism
of the Third-World Debt and the Revision of Legal Doctrine’ 13 Wis. Intl L.J (1994-1995); Odiadi A.N.
‘Sub-Saharan Debt: The Imperative of Contract Adjustment’ 2005, etc
13
This is regulated by ‘Borrowing by Public Bodies Act’ Cap.37 Law of the federation, 1990; these bodies
more often receive grants and aids instead of foreign loan which must be approved by the minister of
Finance.

7
One of the reasons why Nigeria was not considered eligible for the HIPC program of the
IMF/World Bank in 1996 was because it was assessed to be a middle level income
country, not in dire economic straights like some very poor Sub-Saharan African
countries. That kind of view by multilateral lenders and members of the Paris Club failed
to take several key variables into account: population for instance, land mass,
uncertainties of, (and usually unfavorable) international market situations, much of which
Nigeria has little control over. Though an oil producing country, it however had its fair
share of economic misfortune from the unpredictability of international oil pricing which
often impact negatively on the fiscal projections. Even her oil sector is effectively still
under foreign dominance leaving it open to active international economic manipulations
and exploitations, no doubt with local collaborators. Therefore, such assessments are
essentially incorrect, for which reason, it was felt that the World Bank/ IMF were far too
unfair in not allowing Nigerian to benefit from the HIPC initiative as was first conceived
in 1996. According to a commentator, the case for Nigeria is even better made on
political and strategic grounds; that is, allowing a low income country’s external debt to
become so costly as to threaten or impede the very reforms that ought to engender the
economic growth that should help in financing the debt14. ‘In Nigeria, the external debt
has become a major political sticking point, undermining current governments ability to
convince the public and Parliament to take on economic reforms’.15

Nigeria external debt currently stands at $35billion dollars of which $30bilion is owed to
the Paris Club, $3billion is owed the multilateral lenders IMF and World Bank, while
$2billion is owed the London Club.16 The truth though as earlier mentioned is that much
of that is made up of unpaid interests, interests charged on those arrears and penalties that
have accumulated over the years after 1992. From that time the Paris club creditors
refused to negotiate a debt workout for political reasons, compounded by adverse

14
Moss T, Standley S, & Birdsall N ‘Double Standard on IDA and Debt: The Case for Reclassification of
Nigeria’ www.cgdev.org/ 03/2005
15
Moss T, et al, supra.
16
See Okonjo-Iweala, et al supra, p6. There has always been the dispute as to the exact figures of Nigeria’s
indebtedness; higher figures are often presented by creditors without supporting evidence. World Bank &
IMF reports exceeds Nigerian governments report by $3billion most of which figures are based, on
estimates by the institutions as already acknowledged. But the problems to the debtor-country are obvious
as this situation arises out of creditor maximization of its financial advantage.

8
exchange rates and periodic fall in crude oil export earnings. Less than $400 million of
the debt represents post-1985 borrowing. 17

As a nation, Nigeria has always been very concerned about its external debt profile and
reputation. The commitment to managing the debt, weak in certain regards as it may have
been in years back, left the country allocating a good portion of its resources to debt
service at the expense of several social services and developmental programs for its
teeming population.18 Policy positions in this regard can be seen, for example, in Decree
30 of 1988 regarding external borrowing.19 Negotiations for debt rescheduling with the
Paris Club began in 1986, followed by another in 1989 and yet another in 1991.
However, in the mid to late nineties, under a more severe dictatorship of the Abacha
years, Nigeria was a veritable pariah state and the Paris Club denied it further hearing and
access to financial assistance.20 The refusal to provide further credits to Nigeria seriously
affected key components of the country’s industrial base, leading to the closure of several
industries.21 The only financial ease came by way of Agreed Minutes in 1991 known as
the Houston Terms which allowed Nigeria to restructure its Paris Club debt on the
following terms-
a. $1.8 billion representing 100% principal and interest on non-previously
rescheduled debts due for payment between 1st May 1990 and 31st March 1992
were rescheduled for 15 years including 8 years grace period;

17
Rieffel L. ‘The Paris Club Owes Nigeria a Fair Deal’ 06/27/2005 www.brookings.edu///
18
Debt service ration through the years has gone anywhere from 10% to 30% of the GDP
19
The external borrowing policy provides for (a) outlining strategies for increasing foreign exchange
earnings and thereby reducing the need for external borrowing; (b) sets out a criteria for borrowing from
external sources and determine the types of projects for which external loans may be obtained; (c) outlines
the mechanics for servicing external debt of the public and private sectors of the economy; and (d) outlines
roles and responsibilities of the various organs of the Federal and State governments as well as the private
sector in the management of external debts’ quoted from Owasanoye B. ‘Legal Regulation of External
borrowing in Nigeria’ p. 83, in EXTERNAL DEBT AND FINANCIAL MANAGEMENT IN NIGERIA
(1997) ed Ayua I. A & Owasanoye B. Nig. Inst. of Adv. Legal Stud., Lagos.
20
This perhaps explains why Nigeria was not included in the HIPC program. Despite several criticisms that
the program uses arbitrary parameters, it would have greatly assisted the country’s efforts at debt
management.
21
Several industrial projects which got crippled from lack of funds are Ajaokuta Steel Mill; Katsina Steel
Mill; Oshogbo steel Company; Delta Steel, Aladja; Iwopin Paper Mill; Adiyan Water Project, etc; see
Owasanoye B ‘Law and the Lawyer in External debt’ in Ayua I & Owasanoye B supra, p. 117, citing the
press briefing by the Nigerian Min. of Finance in 1996.

9
 b. $1.4 billion representing 100% principal and interest of debts rescheduled in 1986
maturing between 1st January 1991 and 31st March 1992 were further rescheduled
for 8 years including 4 years grace period;
c. Finally, ODA (Official Development Assistant) credits not previously
rescheduled are to be rescheduled for 20 years with a 10 year grace period.22

The country was also about the same time, as an obligation under the Paris Club terms,
able to reach some agreement with the London Club with several options, including-
a. debt buy-back
b. issue of 30 years Par bonds with principal amount fully collaterised with US
Treasury Zero coupons;
c. fixed interest rate of 5.5 % pa for the first 3 years and thereafter 6.25% pa on the
Par bond –collaterised as to 12 months cover at any one time;
d. Traditional rescheduling with interest rate of LIBOR plus 13/16% pa; and
e. Provision of new money by banks which opted for traditional rescheduling, up to
20% of the amount committed to the option.23

Ordinarily, these terms ought to have given Nigeria some lease of life to plough some of
its resources into economic growth programs. But that was not the case as the country’s
debt stock continued to grow with each successive rescheduling and restructuring
exercise. For example, from $7.833 billion in 1985 to $10.228 billion in 1986 and
$12.589 billion in 1987 despite the rescheduling in 1986. The same situation manifested
itself in after the 1989 agreements such that from $14.4 billion in 1988, it went to
$15.871 in 1989 and $17.171 billion in 1990.24 What was responsible for the
phenomenon which continued to puzzle debt management officials? The truth is that the
Paris Club which seems so willing to reschedule and offer some moratorium on principal
and interest, unlike the London Club, has also been too determined to charge interests on

22
Omoruyi S. E ‘Debt Rescheduling and Renegotiation’ p. 168, in EXTERNAL DEBT Ed Ayua I. A &
Owasanoye B. supra.
23
Omoruyi, supra 171.
24
Supra, 172

10
the rescheduled interests, principals and also charge heavy penalties on unpaid sums. So,
the debt continues to grow, rescheduled or not.25

3. Paris Club’s Procedure and Nigeria’s Debt.

The Paris Club has a fairly well known procedure with regards to its rescheduling and
restructuring process. Nigeria had to go through the procedure and there is really no
particular time frame to it, each process progresses as the circumstances allows. The
prerequisites or conditions impact on each country’s debt one way or another. The Club’s
procedure rests on the following; first, debtor country must conclude a reform agreement
with the IMF; second, invitation by the Paris Club creditors and preparations of the
members for discussions and negotiations with the debtor country; third, negotiation of
the multilateral agreement and signatures; finally, the signing of agreements by the
creditors. The success rate, measured in terms of the debtor country’s enhanced ability to
generate resources enough to pay back the quantum of the debt without subsequent
rescheduling has been mostly negative. The process nonetheless offers most countries the
opportunity of taking a harder look at several of their economic policies and help curb
wasteful spending and corruption in government.26 However, since most Third-world
nations do not have super industrial economies whose products attract higher revenues in
international commerce, most reforms programs leaves their economies in comparatively
more difficult circumstances- a case of a therapy so strong that it snuffs life out of the
patient.27 Some of the Paris Club’s basic principles of operation are discussed below-

25
See Tables 1 & 2 infra at p. 28, for Nigeria’s debt stock and debt service activities in the last couple of
years.
26
See Griffith-Jones S & Nichols L. ‘New Directions in debt Management’ 19 Case W. Res. J. Intn’l l. p.
54 (1987) –‘Most debtor governments have accepted the need for often draconian economic adjustment to
stay within the financing constrains imposed by the unfavorable world economic environment and the need
to finance their debts despite these costs. But since 1985, a few debtor governments, especially in Latin
America, have begun to perceive that massive and pervasive net transfers have strengthened their
bargaining position and have re-defined the minimum debt-rescheduling deals acceptable. That is that
governments have shifted to the view that it is the international financial system that has to adjust to their
pressing growth and development needs, and that if it does not do so sufficiently, debtor nations will be
forced to take unilateral action and lighten the burden of negative net transfers’; see also, Abbott G. C
‘Debt Relief for Poorer developing Countries’ 19 Case W. Res. J. Intn’l L. p.1 (1987)
27
See Hardy C ‘Africa’s Debt Burden and Its consequences’ 97 THE COURIER 68 (1986 May-June) ‘The
Paris Club mechanism has not been effective in easing Africa’s difficulties. The procedures adopted by the
Paris club place strict limits on the definition of the debt eligible for debt relief. Consequently, more than
half of the debt service due is not considered eligible. Furthermore, relief is, when provided, on only a
small part of the remaining debt: and since the amount of relief is usually insufficient to ease the liquidity

11
A. IMF Conditionality- One of the fundamental prerequisites for Paris Clubs negotiation
with a debtor country is the adoption and implementation of economic reform program as
prescribed by the IMF in exchange for short term credits to finance the adjustment
program. The reforms typically include currency devaluation, trade liberalization,
withdrawal of subsidies, domestic credit and real wages. The three key components of the
program (1) Fiscal adjustment- here the government is asked to bring its expenses in line
with its revenues and this is to be achieved by cutting back on public investment.28 (2)
Export orientation – here focus is on export and all earnings are to be mobilized for debt
service rather for the use import of goods no matter how critical to the optimal
functioning of some industries;29 (3) Adjustment based on privatization and
liberalization- here all public enterprises are to be privatized, removal of trade barriers,
and the economy exposed to the stimulus of foreign competition while the state should
cease involvement in production.30

For very obvious reasons, the IMF’s Structural Adjustment Program brings with it severe
economic hardship. The Nigerian experience in the adoption of the program in the mid
eighties marked a visible economic downturn, much of it quite traumatic for the
populace. It led to the freeze in pubic sector employment; the immediate downsizing of
personnel and production capacities by many companies and industries as sourcing of
foreign exchange for servicing the importation of industrial raw materials and other
components was stopped. With large scale unemployment across the sectors of the
economy followed by loss of earning power of most families, absence of subsidies in
many consumer items, withdrawal of many social services even in the health and
educational sectors, hyper inflation set in and Nigeria began to experience a serious
breakdown of social cohesion and political stability. For the Paris Club and IMF to insist
that governments should abandon social responsibilities to the people and keep clear of
productive activities, in such poor countries where only the government can muster

problem for more than a year or two, this arrangement has led to repeated rescheduling’ quoted by Abbott
G,C, supra, p.10.
28
Lothian, supra p. 442
29
Supra, 443
30
id

12
requisite resources for most economic activities, has often times proved a sure recipe for
further economic deterioration. The Fund’s prescriptions often completely
discountenance the phased and gradual approach in countries whose cultural and colonial
economies were never structured on the laissez- faire paradigm. The question has always
been that for those mostly colonial creations with centralized and command economies,
at what point does state capital come into private control as to be available to private
persons for all manners of economic activities? Where divestment from public
corporations are recommended, in so short a time frame as the Fund often does, where
would the money for the purchase of equities and interests in the corporations come
from? These kinds of scenarios has often encouraged official corruption through schemes
of round tripping of funds as certain favored persons use their advantages to take over
control and become immediate owners of public assets of common heritage. These are
the more obvious contradictions which all too often create social tensions in the IMF’s
reform programs.31

B. Multilateral approach- The Paris Club is essentially collegial in its dealings. With no
less than fifteen members, it relies on consultations and solidarity amongst the members
to reach decisions. This method which is based on consensus has been said to be both a
principle and a procedure. As a principle it, ‘reflects the policy decision to carry out debt
restructuring in an ad hoc framework rather than through a permanent mechanism
established by an international treaty’32This gives the Club ample freedom to deliberate
and arrive at decisions without the restrictions of a rigid formula. But consensus and
31
See also Amara S. ‘The Foreign Debt From Liquidity Crisis To Growth Crisis’19 Case W. Res. J. Intn’l
l. p. 22 (1987) - ‘If the conditionalities proposed—are not applied with a considerable degree of flexibility,
rather than a contribution, they may become a point of political friction and a further obstacle to the
adjustment effort. Indeed, it would be a delusion to expect that economies more fragile by nature and still
debilitated by recent years of recession can, within the short period of adjustment program, completely
eliminate public deficits, subsidies, and trade restriction, when not even advanced and mature economies
have been able to do so. How could it be possible to impose serious constraints on the domestic decision –
making process in reference to such important economic policy variables as price and wages policies,
measures related to savings and consumption, precisely at a moment when transition to democracy raises
legitimate expectation of an increased participation of society in government decisions?’
Some others question the mandate of multilateral lenders to prescribe reforms, seen as interference in
internal affairs of borrower country. - see Wadrzyk M ‘Is It Appropriate for World Bank to Promote
Democratic standards in a Borrower Country? 17 Wis. Intl. l. J. p.553 (1999); but see also Handl G ‘Legal
Mandate of Multilateral Development Banks as Agents of Change Toward Sustainable Development’ 92
Am. J. Intnl. L p.642 (1998) for interesting comments.
32
Rieffel L. RESTRUCTURING SOVEREIGN DEBT 2003 p.70

13
consultation has its own drawback. It severely limits the possibilities of bilateral
agreements having regards to the fact that each creditor has its own strategic interests in
relation to some category of credit seeking country. Where a country can make a good
case for credit directly to another, the existence and domineering influence of the Club,
limits that possibility as most creditors feel compelled to function only within the Club’s
framework. A Club with a couple of highly influential members can come under overt or
covert pressure to act one way or another.33

However, Nigeria was able to secure for itself the liberty to enter into bilateral
negotiations with each creditor country- (fifteen in number) on specific details of each
agreement, for final reconciliation of eligible debt and applicable interest rates.34 This
became necessary after Nigeria kept off contact with the Paris Club, for much of the
nineties, after it was refused assistance with any debt work-out. In the subsequent
bilateral negotiations Nigeria was able to handle the debts owed on a case by case
method, reconciling most of the figures and data. Figure discrepancy remains as the
creditors claim even with the year 2000 figures were $23.236billion debt owed the Paris
Club, while DMO’s figures added up to $22.983billion, a significant difference of
$252.875 million.35

C. Comparative treatment. One important item in the Paris Clubs Agreed Minutes is the
comparative treatment clause, a ‘boiler plate’ provision36 which seeks to achieve a
balanced treatment among all external creditors of the debtor country. Here the debtor
agrees to seek same commitments from non-multilateral e.g., bilateral creditors who are

33
For example, the US government essentially operates on a policy of not forgiving debts owed to it by
foreign governments, although it has been willing to adjust repayment schedules when foreign borrowers
are unable to meet the original terms of their US loans. See Sanford J. E. Foreign Debt to the US: Recent
Rescheduling and Forgiveness 28 GW J. Intn’l L & Econ. 345 p10. In note 39 per Clinton administration
1993 stated –‘ It is established the U.S. Government policy that its agencies should extended loans and
other credits to foreign borrowers with the explicit understanding that repayment obligations will be met in
full accordance with the contractual terms and conditions agreed upon with the borrower at the time such
loans and credits are authorized and signed’
However, it needs be added that the U.S has on occasions forgiven debt particularly military debts and has
in recent times championed the cancellation of the Iraqi debts on grounds that they were odious having
arisen under Saddam Hussein’s regime.
34
Debt Management Office, 2003- Annual Report & Statement of Accounts p.27
35
DMO report, supra.
36
See note 7.

14
not members of the Club, private banks, bondholders and suppliers, on comparable terms
to those contained in the Agreed Minutes. As succinctly stated ‘The Paris Club preserves
the comparability of treatment between different creditors, as the debtor country cannot
grant to another creditor a treatment less favorable for the debtor than consensus reached
in the Paris Club’.37 The idea of this provision is that no creditor, or group of creditors,
should stand at an advantage over the others. And so came the other point as to whether
the nomenclature is not in fact inappropriate as what is intended is really equality of
burden sharing, as this connotes the idea that the inherent costs in the restructuring
exercise should not be borne by one set of creditors to the benefit of others.38 What this
means is that both bilateral and private debt must come to the table for the same
treatment. Although, special dispensation is usually granted to multilateral lenders like
the IMF and the World Bank, considered as preferred lenders, who come first in line to
for payment by the debtors.

Nigeria had somehow worked itself into a different situation. It took the opportunity of
the break with the IMF’s Stand-By-Agreement and by extension, rescheduling
arrangements with the Paris Club to meet most of its obligations to the London Club of
private lenders. Nigeria was able to restructure about $6 billion of its commercial debt
into Brady bonds at a substantial 60% discount. As at the time of the recent relief
negotiations over eighty five percent of the debt stock was owed to the Paris Club.
Nigeria could have gone further to restructure her commercial debt on the proposal of her
Legal and Financial advisers39 by exchange or swap of her Par (Brady) Bonds and
Promissory Notes with new Global Bonds, she instead had to suspend that in deference to
advise of the IMF on the likely impact it will have when it resumes rescheduling
negotiations with the Paris Club40. The comparability of treatment, logically, ought to
work both ways. In practice, certain problems arise as to how to reconcile the diverse
body of lenders who must have provided credit for varying reasons. Although, one of the
aims of the Collective Action Clauses – CACs is to be able to rein in bond holders and

37
Reiffel, supra, p.72
38
Supra, 72
39
Lovells Solicitors (Legal Advisers) and Salomon Smith Barney (Financial Advisers)
40
See www.nigeriafirst.org/ 8/2/2005

15
get them better coordinated for uniform actions, it does not quite prove as effective in
practice.41 Therefore, with the cancellation of sixty percent of the debt, by the Paris Club,
it can be argued that the London Club, is obliged to cancel sixty percent of the remaining
debt on a prorated formula in keeping with the ‘burden sharing’ content of comparability
of treatment. Now, how can that be effected, that is, how can bond holders spread across
the globe be brought together to agree? The counter position may be that because both
Clubs lend for different reasons- the Paris Club lends more for various purposes such as
comity, national interest, humanitarian considerations, even commercial purposes, etc,
while the London Club lending is almost strictly commercial. The London Club lends
only for the income generated through interest charged at market rate as return on
investment. In effect, while the former can always afford to be more considerate, the
latter cannot, notwithstanding the comparability of treatment clause.42 How this
arrangement plays-out as further measures of debt relief is granted by the Club, will
surely be an engaging subject for further examination.

D. Case by case approach- Despite its effort to strive for consistency and uniformity in
its dealings with sovereign debtors, the Paris Club still insist on a case by case approach.
According to the Club, it does that in order to permanently adjust itself to the
individuality of each debtor country. The other consideration is that as sovereigns, each
country prefers to be given its due attention on its own merit. Each country has its own
peculiar history, politics and socio-economic realities. To that extent, the Club had to
contend with Nigeria’s peculiar situation- years of military dictatorship, mis-governance,
civil unrests, official corruption, general poverty and above all a commitment to a
comprehensive economic reform program.

4. Home grown reforms.

Since the adoption of the IMF’s Structural Adjustment Program - SAP in 1986, Nigeria
has always kept herself on the leash of economic reform programs. SAP was aimed at
securing macroeconomic stability, enhance domestic production and use the framework

41
See Bratton W & Gulati M ‘Sovereign Debt Reform and the Best Interest of Creditors’ 57 Vand. L. Rev.
p.4 (2004)
42
Reiffel L ‘Paris Club, 1978-1983’ 23 Columb. J. Transnt’l. J. L (1984-1985) p.89

16
of market mechanism for allocating resources.43 The trauma of the program and the lack
of political stability in the country in most of the eighties and nineties vastly reduced the
possibilities of success in the program implementation. It was in several respects a shock
treatment which, for the most part, put the IMF in a negative light. It was felt that the
Fund and all its policies are against the interests of poor people and it has no qualms in
alienating them (the poor) in the scheme of things. Nigerian authorities remained
somehow surefooted and remained on the path of reform as the key to economic growth
and development despite the political failures of the string of military regimes.

The current Nigerian government is pushing the reforms further. As an important step it
established the Debt Management Office –DMO, to manage the country’s external debt.
It also, conceived and has been pursuing with ample fidelity, an elaborate reform
program called NEEDS (National Economic Empowerment Development Strategy). The
program has several components, focusing on all key aspects of the economy and
national life. In the fresh re-engagements with the country, after the years of no contact,
the IMF seems to have found the Nigerian program compelling and well thought out and
so give it a positive assessment. Part of the Nigerian argument is that comprehensive and
well focused as the program may seem, it stands little chance of success so long as the
debt overhang remains and Nigeria44 fails to get appropriate ODAs. Apart from debt
cancellation, the country also needs outright grants and financial assistance to facilitate
the effective implementation of the economic reform program. The point has been made
severally that without debt cancellation Nigeria will not meet the 2015 Millennium
Development Goals –MDG45.

In the new arrangement preceding the Paris Club’s ‘Agreed Minutes’, a Memorandum of
Economic and Financial Policies -MEFP would be submitted by Nigeria to the IMF as a
basis for formal recognition of the NEEDS program, after which it will get a Policy
43
See also Akinla O.O. ‘Economic Reform in Sub-Saharan Africa: The Changing Business and Legal
Environment’ 7 B. C. Third World L. J p. 32 -Nigeria refused an offer IMF offer of a $2.5 billion loan
which was conditional upon her implementation of a number of domestic adjustments, such as reductions
in exchange rate of its local currency and liberalization of its economy. Nigeria went ahead to implement
without the money.
44
See IMF – Nigeria, 2005- Article IV- Consultation Concluding Statement, March 25, 2005.
45
Pettifor A ‘A Global Agenda for Dealing with Debt’ in DEBT TRAP supra p.263

17
Support Instrument (PSI). The PSI is conceived by the IMF as a non-financial instrument
for low income members seeking fund support for their policy framework. The PSI
according to the IMF, is based on members’ poverty reduction strategy to ensure
ownership focused on macroeconomic and debt sustainability, while deepening structural
reform in key areas that are impeding economic growth. Structural reform, in this
connection, must cover, trade reform, financial sector reform, fiscal discipline and
responsibility, transparency in governance, etc. The IMF will retain, what, in effect, is an
observatory role in the program implementation under the PSI. It would however, not go
so far as to make prescriptions, the kinds of which had severely damaged its reputation as
being too harsh on poor countries. The NEEDS program is premised on a number of key
factors which are -
a. To establish a sustainable macro-economic framework- to foster certainty and
credibility; to curb inefficiency in the public and private sector; to provide
effective incentives and structures that will enhance the growth of the private
sector. The framework targets a minimum of 5% interest rate, efficient debt
management and reduction.
b. To establish sound fiscal practices and discipline; bring into being MTEF
(medium term expenditure framework) which consists of a top-down estimates of
aggregate resources available for public expenditure that is consistent with
macroeconomic stability as well as bottom up estimates of the necessary costs for
implementing all existing policy initiatives.
c. To make government generally more efficient and effective; carry out public
service and civil service reforms based on downsizing of staff strength,
monetization of entitlements, pension reforms and local government reforms for
greater efficiency.
d. To make governance more responsive as to deliver on security and public safety,
rule of law, combat corruption in government and public service, enthrone
transparency through due process and procurement reforms.
e. To facilitate private sector development based on deregulation, mobilization of
capital, privatization of government controlled public utilities in the energy, oil
and gas, telecommunication, etc. This is specifically the mandate of the BPE

18
 (Bureau of Public Enterprises) to husband the privatization of all federal and State
government enterprises.
f. To develop and maintain infrastructure in the area of road rehabilitation (urban
and rural), electricity and power generation, telecommunication.
g. Mobilization of longtime capital for investment through privatization of national
corporations, small and medium enterprises, compulsory schemes such as (i)
contributory pensions (ii) contributory housing fund (iii) national saving scheme
(iv) national health insurance, etc.46

Other critical specific components of the policy reform initiative include, first, the
replication of the policy thrust at the state level –SEEDS and the local government
level – LEEDS; second, setting up of the ICPC (Independent Corrupt Practices and
other related offences Commission) and the EFCC (Economic and Financial Crimes
Commission) both of which has almost limitless legal mandate to investigate and
prosecute all forms of official corruption in government, corporate sector and others;
third, the commercial banks minimum capital requirement of N25 billion (twenty five
billion naira) or $200 million; fourth, EITI (Extractive Industries Transparency
initiative) to sanitize the oil and gas sector (targeted at both foreign and local
operators) in other to maximize the accruable resources and make it available for
national development; fifth, the proposed Fiscal Responsibility Law, to create greater
budgetary discipline, monitoring and implementation, etc.

Institutional responsibility with regards to external borrowing got further legal boost
when the Supreme Court of Nigeria gave a judgment empowering the Federal
Government to deduct at source the net financial obligation of any State of the

46
See Summary of Recommendations NIGERIA ECONOMIC SUMMIT 10-12 September, 2005
www.undp.org.ng also, for other components include –Sectoral reforms targeted at a. Agriculture, b.
Industry, c. Education, d. Services, etc. However, certain critical appraisal of the program have questioned
the entire basis of the reform as premised on abandoning the essential social responsibility of government
to the citizens; ‘Is institutional reform a subterfuge for disallowing government from managing the national
economy for the benefit of every citizen? see Amadi S. in HuriLaws ‘Contextualizing NEEDS: Politics
and Economic Development’ (REPORT OF CIVIL SOCIETY DIALOGUE ON NEEDS, 2003)
www.bellnigeria.org

19
 Federation47. In the suit Attorney General of Abia State vs. Attorney General of the
Federation48 the Plaintiff sought an order of perpetual injunction restraining the
Defendants (Federal Government of Nigeria) or any of its agencies, which is the
Ministry of Finance from deducting or making any deductions from the Plaintiffs
share of Federation Account. The court held that ‘because of the defaults in the
payment of these loans (foreign loans) the Federal Government had to guarantee
payment to the foreign creditors---the duty to pay rests squarely on the Federal
government (for the financial benefit which was enjoyed by the Plaintiff). Therefore a
grant of an injunction as sought by the Plaintiff cannot be proper or right in-law as in
this respect, the Plaintiff has nothing to protect. The prayer for perpetual injunction is
therefore denied.’ This decision has finally set the tone for sub-national responsibility
with regards to obligations to the external debt. Prior to that decision, as a result of
the largely uncontrolled regime of external borrowing, many states as earlier
mentioned, obtained loans from various multilateral lenders on varying terms and
conditions, all of which where guaranteed by the Federal Government. The
reconciliation of the figures from these borrowings and actual debt amount posed a
lot of problem to the Debt Management officials. What the decision has done is to
peremptorily compel the sates to share in the burden of debt service obligations.

The NEEDS program holds itself out as the sure path to possible socio-economic
redirection of Nigeria. It seeks to bring about fundamental changes from a holistic
perspective. In all, it can be safely stated that the Nigerian reform program establishes
a firm footing for the much anticipated economic recovery. Its survival and ultimate
viability will depend on internal fidelity to the program by the operators, its capacity
to contain much of the socio-economic stress and tension that will result from more
difficult components as well as the external support that it can continue to generate
from multilateral institutions.

47
Nigeria is made up of thirty six states.
48
2005 6SC pt 1, p.63

20
 5. Debt relief, sustainability and management.
Regardless of the argument put forward by some commentators,49 the debt relief is a
major boost to the Nigerian economy. The debt overhang poses a major challenge and a
drawback on all developmental initiatives. As has been stated debt forgiveness ‘is the
most complete and effective strategy for debtor countries to recover from debt induced
depression and resume sustainable growth. Not only is the principal extinguished, but
also the steady accumulation of debt that comes from repeated rescheduling under and
the resulting capitalization of interests and arrears are eliminated.’50 The sense of being
caught in some kind of ‘debt trap’ in which each succeeding year of rescheduling brings
further and higher financial obligation to the debtor country, saps fiscal efforts which
leads to official frustration and subsequent indifference51. Debt overhang is a major
drawback on the country’s capacity to attract and retain FDIs (Foreign Direct
Investments) as both credit ratings and other economic indices show negative assessment
that discourages investors. Also, debt overhang distorts fiscal and development policy
formulation as a result of the unpredictability of the specific outcomes of each
rescheduling and restructuring session. Debt relief therefore makes resources, which
otherwise would have been deployed to debt service, to be available for developmental
use. In the case of Nigeria, it will greatly assist her effort in the area of combating
diseases such as malaria, meningitis, HIV, etc and the health sector in general; in
boosting agriculture through funding researching and developing better farm practices
and developing high-yield crop strains to enhance food production; infrastructural
reconstruction, like roads, energy, water and other public utilities; in combating illiteracy
and helping to fund public schools and higher education for better quality delivery.
Sustainable debt management for Nigeria, post the relief, therefore involves, first, a well

49
The point of departure for many is that the relief did not go far enough; that it should have been 100%
cancellation and that the package still has several financial traps that can in fact return the country to the
debt trap once again.
50
Obadan, supra
51
There is usually a heavy financial and administrative costs and inconvenience associated with repeated
rescheduling under the Paris Club which debtor countries can ill afford. See Greene J & Khan S. ‘The
African Debt Crisis’ AERC Special Paper 3. Nairobi initiatives Publishers cited by Obadan, supra 203

21
ordered legal and regulatory framework and second, an institutional arrangement that can
deliver on set goals and objectives.

(a) Legal and regulatory framework – This denotes legal regime that facilitates effective
debt management. The setting up of the Debt Management was the first sign that the new
democratic regime felt the urgent need to break from past haphazard practices. To
underscore the urgency, the office began operating in 2000, two years before the enabling
legislation was passed in 2003. Other matters like the fiscal and budgetary process which
are all inter-woven are also very crucial to the efficient functioning of the national
financial structure. An effective legal framework, therefore, will amongst others,
standardize the borrowing process making it less vulnerable to abuse. It will provide a
broad policy guideline for borrowing or sourcing external finance and enforce its strict
compliance. The legal framework will define who has power to borrow on behalf of
government, typically the Minister of Finance, and who has power to issue Federal
Government guarantee; it will define the role of such state entities as the Ministry of
Finance, Central Bank, Debt Management Office, Office of the Accountant General,
Office of the Auditor General, etc as it relates to external finance matters; it will state the
source of the power to borrow and how that power will and should be exercised; it will
state clearly penalties for abuse and procedure for recovery of borrowed sums from sub-
national and other state entities. The legal regime need not centralize or concentrate all
the borrowing powers on the Federal Government as is being suggested in Nigeria. This
is particularly so because of the Federal nature of the Nigerian state of which many of the
component parts are very eager to embark on individualized economic activities that may
not necessarily be funded by the Federal Government and should be free to source for
funding outside. However, this must be done under close supervision based on very clear
and strict guidelines. The point has been made by the EIU, that ‘Nigeria’s federal
structure and independent –mindedness of many of its state governments have made the
formation and implementation of economic policy difficult under the democratic system--
-A further complication is that all the states have their own policies and budgets and often
make policy pronouncements that differ from, or contradict, those provided by the federal

22
government’.52 What has been at the heart of the very future of the Nigerian state is the
clamor for ‘fiscal federalism’53 by several states of the federation. The Nigerian
federation remains under vulnerable centrifugal forces always threatening its political
stability. A pragmatic approach would be to strike a balance without overly constricting
the rights of the component states in having ample control over their development
programs and initiatives. The legal regime then would set, for example, borrowing caps
for states, define purposes that are considered legitimate, prescribe the acceptable tenure
for such loans, without which, no Federal Government guarantee would be provided.

The Supreme Court’s decision in Attorney General of Abia State’s54 case demonstrates
Nigeria’s willingness to enforce responsibility with borrowing. Supervising the
component states and making them fulfill their debt service obligations by the Federal
Government to external creditors imposes a real discipline to the debt management
process. The court reached its decision on the premise that ‘the Plaintiff has nothing to
protect’ and should therefore be subject to some control and supervision. Nigeria is also
on the verge of enacting the ‘Fiscal Responsibility Act’. The bill which is already before
the National Assembly, is a law aimed at completely re-organizing the entire fiscal and
financial management system in Nigeria. The law seeks to achieve the following
objectives (a) Improve inter-government fiscal coordination, (b) Promote greater
macroeconomic stability, (c) Promote fiscal prudence and sound financial management
(d) Ensure transparency and strengthen accountability and (e) Provide conductive climate
for generating growth and reducing poverty. Some of the key features of the proposed
law include medium term strategic plans to be conducted on the MTEF (Medium Term
Expenditure Framework); also, appropriation and budgetary process which will provide
for consistency on revenues and expenditures, standard format with regards to parameters
and projection for key variables and due process and compliance with procurement rules.
With regards to indebtedness and borrowing, the law will guard against excessive

52
Economic Intelligence Unit, Nigeria Country Profile, 2005, p.26.
53
This stands for state control of resources located within its territory with the sole obligation of paying
only a certain agreed percentage of revenue as tax to the federal government, much like the practice in the
USA; See the position of the south-south states at the recent ‘National Conference on Political Reforms’
2005
54
See note 47

23
borrowing, stipulate that new debt will be based on cost benefit analysis and directed by
to growth and development.55

Another important part of the legal regime is the role of lawyers in the entire debt
management framework. For a long time, lawyers played no significant part in Nigeria’s
external debt transaction as they merely came into the process at its final stages and these
led to some problems. Lawyers come with basic analytical skills and background that
permeates several disciplines which helps to bring added rigor to the borrowing process.
Documents and their content get greater scrutiny in order to secure their party’s interests.
The loan process can spread through several stages such as identification of the
borrower’s need, preparation for the borrowing exercise, appraisal of terms and
conditions, actual negotiations and approvals, and finally, implementation of the contract
at which stage the borrower begins to have access to the fund.56 To be sure, typical loan
transactions do have as a requirement by both the official and private lenders lawyers’
perusal of the documents. But more often than not, those were foreign lawyers much
preferred and routinely recommended by the lenders. Such lawyers’ professionalism was
never in doubt, but their limited knowledge of the local circumstances, peculiar cultural
traits greatly hampered their effectiveness as counsels to a loan seeking poor country.
One way of getting around the problem is to get the foreign lawyers usually
recommended by multilateral lenders to collaborate with local law firms in providing
legal services.

There are also, the post credit responsibilities for the lawyer. These includes monitoring
the disbursement of the fund in order to ensure compliance with the contract terms; where
circumstances alter due to unanticipated events to quickly arrange, where possible,
renegotiations of terms and conditions; generally assisting the management team and
giving counsel and helping to enforce compliance with contractual provisions, legal
55
See ‘Understanding the Proposed Fiscal Responsibility Law’ prepared by Min. of Finance 2004. The law
has been indeed modeled after such similar enactments as Fiscal Responsibility Act of New Zealand; Code
of Fiscal Stability, Britain; Growth and Stability Pact of the European Union; Fiscal Responsibility and
Budget Management Law, India; also similar legislations I Brazil, South Africa, Argentina and the US state
of California.
56
See Bradlow D. ‘ The Role of the Lawyer in the International Debt Operation of Developing Countries’
UNITAR Manual No 6 (1999) for more discussion

24
requirements and regulatory specifications. With DMO having a functioning legal
department, what is important is a program and a commitment to periodic training that
can bring about the acquisition of fresh skills. This would help the staff keep abreast with
the ever changing development in international finance legal practices.

(b) Institutional arrangement- Three institutions are directly connected to Nigerian

external debt management. They are the DMO, the Central Bank and the Office of the
Accountant General. At the heart of Nigeria’s debt issue is the absence of reliable data as
to the exact figures of indebtedness or even transactions giving rise to them. The
government took a step to change all that by establishing a Debt Management Office-
DMO in 2000. The DMO was set up under the auspices of the DFID (UK) and patterned
after the UK and Ghanaian models. It is currently well networked with, and a member
of, a global body of debt management agencies. The mandate of the DMO are, amongst
several others, the maintaining of a reliable database for all loans taken or guaranteed by
the Federal or State government or any other agencies; preparing and submitting to
federal Government a forecast of loan service obligation for each financial year;
verifying and servicing external debts guaranteed or directly taken by the federal
government; submitting to the Federal Government for consideration in the annual
budget a forecast of borrowing capacity in local and foreign currencies; establishing and
maintaining relationships with international and local financial institutions, creditors and
institutional investors; administering the debt conversion program of the Federal
Government, etc.57

The establishment of the office can only be seen in the wider context of the economic
reform program of the government as external debt management as a key component of
that reform. The DMO has therefore been the bone around which the flesh of all Nigeria
external debt management program revolves. It has helped to give the effort a sense of
focus and an institutional support base which had been lacking all along in the country.
The Central Bank’s Foreign Operations Department has responsibility for verifying and
authenticating signatures as well as the final steps of effecting payments. Prior to the

57
See DMO’s annual report and statement of account 2003 for other mandates.

25
establishment of the DMO it had the sole responsibility, as it were, of handling Nigeria
external debt management. This was the case even though such a function was merely
ancillary to the responsibilities of the bank. As a result, the bank did acquire some
corporate experience, personnel and information relevant to the overall debt management
strategy in the current dispensation.58 The Accountant General’s office issues necessary
mandate when all the reconciliations of figures and instruments have been done by the
DMO and the CBN. The office is also responsible for general audit and evaluation of the
activities of the two agencies as it relates to debt management in order to ensure that all
receipts are in conformity with agreed and established guidelines within the framework of
Nigeria’s new fiscal policy.

Conclusion
The place of debt cancellation as an important part in the management of sovereign debt
is still an unfolding subject. The hesitation on debt cancellation for many of the creditor
nations and institutions has been that it would amount to substantial loss of claims and
the incomes which has kept many such institutions in sound financial state. The usurial
content of much of the loans which gave rise to the debt would be frowned at by most
domestic jurisdictions of creditor nations from the conception of what is fair and just.
That kind of legal attitude can very well be replicated in international finance with the
same purpose: that is, for the protection of persons who are financially weak from
exploitation, predatory lending, extortion, and general abuse by stronger lending entities
and institutions.59 Debt cancellation in such circumstance will be an expected legal

58
This explains why the first head of the DMO came from the External Finance Dept of the CBN.
59
See French Usury Statute Article 313-4 of the French Consumer Code which states that a ‘conventional
loan constitutes a usurious loan when it is granted at a rate that exceeds, at the time it is granted, at least on-
third of the average effective rate applied during the prior quarter of the year by credit institutions for loans
of the same nature with similar risks..’ It goes so far as enabling a borrower not to pay lender interest in
excess of applicable usury rate. These rules operate precisely to restrict contractual freedom and ‘cannot be
derogated from by contract’ – Cafritz E & Tene O ‘Conflict of Laws in International Loans to French
Corporations: The Usury Question. www.library.findlaw.com 2002/Oct/7
Also, see the Community Reinvestment Act (CRA), 1989 of the US which is to curb sub-prime lending,
that is , loans made ‘available on ore expensive terms to borrowers who have weak credit histories or
repayment abilities.---Predatory loans are characterized as loans with abusive terms, deceptive practices,
and the inability of a borrower to repay the loan’- Marsico R.D ‘Subprime Lending, Predatory Lending and
the Community Reinvestment Act Obligation of Banks’ 46 N.Y.L. Sch. L. Rev. p.735 (2002-2003).

26
consequence that can arise out of several imperatives, e.g. policy60 (comity, strategic
considerations, etc), morality (from sheer compassion or notions of what is just given the
debtor’s difficult circumstance)61 or legal62 (contractual impossibility, impracticability,
etc). Debt cancellation traditionally can also be, and most often is, the interplay of all
these factors; but it relieves, in reality, both the debtor and the creditor- the latter more
from the legal burden and moral dilemma which is inherent in the evolution of the debt.63

External debt management in Nigeria has been an abiding challenge to several

governments but none has put in place firmer structures by way of institutions and policy
framework than the current regime. The Paris Club merely met the expectations of
Nigerians half way, despite the rather compelling argument that it deserves complete
relief. But as mentioned earlier, the challenge for the country is to pursue to the letter
key aspects of the reform program under the PSI of the IMF. Whether the program will
prove to be the ultimate panacea for Nigeria’s economic ills, will be seen in the coming
years.

60
The Iraqi case for example said to be based on ‘odious debt’, but equally so, for strategic reasons in the
‘war on terror.’
61
See Gregory D. L ‘From Pope John Paul II to Bono/U2 /: International Debt Relief Initiatives “In The
Name of Love” 19 B.U. Intnl L. J. p.270 (2001) - ‘The moral rhetoric of social justice, especially when
rooted in established religious tradition, clearly has the power to frame the architecture, and to set the
tangible agenda, for action------Debt relief, therefore, may be largely attributable to the moral and religious
rhetoric in culture quite distinct, initially from more formal international law -making arenas. Ultimately,
debt relief remains scripturally-rooted, flowing from the moral imperative to ameliorate the plight of the
poor’; see also Mancina M. F. ‘Sinners In The Hands of An Angry God; Resurrecting the Odious debt
Doctrine in International Law’ 36 Geog. Wash. Intnl. L. Rev
62
These rules of contract law have not been tested yet before a court in sovereign debt cases.
63
See Abbott supra p. 16 ‘With a more positive approach, creditor countries could achieve a lot more.
Instead of seeking to minimize their losses, they should capitalize on the real advantages which debt relief
can contribute towards improving international economic relations between developed and developing
countries…..At present, the creditor countries seem to be getting the worst of all possible worlds. Their ad
hoc approach does not really reach the root of the debt problem and is often counter-productive. Also, the
amount of relief is too little too late.’

27
Table 1- Structure of Nigeria External Debt Stock (US$ million)
Category 1983 1986 1989 1992 1995 1998
Paris Club 5390 10228 15871 16454.7 21669.6 20829.93 20
Multilateral 884 1887 3171 4518 4411 4237 3
Non-Paris
Club 1526 2873 2311 1226.1 1311.2 66.77
London
Club 6263 6088 5680 2120 2045 2043 2
Promissory
Notes 3702 4498 4553 3246 3148 1597.84 1
Total 17765 25574 31586 27564.8 32584.8 28773.54 28
Source- DMO –Nigeria and the Paris Club 2004

Table 2 – Structure of Nigeria’s External Debt Service (US$ million)

Category 1985 1986 1989 1992 1995 1998
Paris Club 410.9 182.6 246.6 536 271.8 228.54
Multilateral 98.2 231.6 514.7 810 826.9 680.23
Non Paris
Club 10.1 7.5 128.8 141.9 109 19.77
London
Club 981.5 856.9 1029.9 637.4 161 127.71
Promissory
Notes 0 0 248.3 267.3 251.9 216.29
Total 1500.7 1278.6 2168.3 2392.6 1620.6 1272.54
Source- DMO –Nigeria and the Paris Club 2004

28