Nigeria gets debt relief from Paris Club

I realize that our government’s finance people are too harassed these days to think of further complicating their lives with thoughts of seeking debt relief. But if the Supreme Court rules out the EVAT law with finality, we will have a totally new ballgame.

For now, tough as the politics of it might be, they must think that making us pay higher taxes is the easier option out of our threatening debt problem. We are often told that we missed the window of opportunity for seeking debt relief when Tita Cory failed to ask for it in 1986.

Nevertheless, I thought people here should know that Nigeria, a populous African country that is also the world’s seventh-largest oil exporter, just got debt relief. According to the BBC, the Paris Club of creditor countries has agreed the outline of a debt relief package for Nigeria, calling for about $18 billion of debt to be written off.

Nigeria owes the rest of the world $35 billion, and the new talks are linked to an agreement between Nigeria and the IMF on debt repayments. It is interesting that the BBC report noted "part of Nigeria’s case in asking for debt relief has been that most of the money it received was lent to corrupt military dictators, a fact the African country says was well known by foreign banks and governments."

In other words, foreign governments and banks knowingly gave money to corrupt leaders and should be made to take their lumps. This is something we have been saying all along… the lenders made a bad judgment in granting large credit accommodations to our corrupt leaders, why should we sacrifice the future of our children by allocating money to pay them first instead of building schoolhouses and training teachers? Then again, given the current image of the Arroyo regime, you know... jueteng... Jose Pidal...Garci... General Garcia...this kind of reasoning probably rules us out for debt relief.

But the Arroyos and their cronies aside, this is probably something we could say pretty much too, specially for the nuclear power plant we have not used, but continues to pay for. Maybe, if our leaders just gathered enough nerve, we could ask the same thing from the United States with regard to the nuclear plant and the Paris Club for the other debts that could be linked to the corruption of the Marcos dictatorship. We could say that we need relief if only to free resources to properly equip our armed forces and the national police to deal with terrorism… and properly educate our children.

The benefits of a successful debt relief negotiation are tempting. The UK’s Chancellor of the Exchequer, Gordon Brown, said the debt relief combined with the debt buy-back would "mean there is 100 percent debt relief for Nigeria possible over the next six months". The BBC report said the debt relief being given to Nigeria would be significant, and allow for long-term debt sustainability.

According to the BBC, the initial debt relief terms will be based on the so-called "Naples terms" – which are equivalent to a 67 percent reduction on the face value of debt. Nigerian senator Udo Udoma told BBC "as an initial negotiating position, it is welcome, but Nigeria will naturally press for a higher discount. It is a major development because about a year ago they (Paris Club) were not willing to listen to any plea for debt relief. To move from zero to 67 percent within a year is a major development, I am excited by that."

Despite its oil resources, Nigeria’s people remain poor. Seven million children receive no schooling at all and one in five die before their fifth birthday. Governance is not that good either with peace and order conditions far from stable. Surely, we could use just about the same reasons Nigeria used to get their debt relief. At least, they tried and were successful. We won’t even think of it.

Chinese Shopping

In the ’80s and ’90s, the Japanese were busy buying the Rockefeller Center, Pebble Beach Golf Club and Hollywood movie studios. The Americans were not concerned because after all, these prestige companies couldn’t possibly affect national security by any stretch of the imagination. Besides, the Japanese were clearly overpaying and they ended up losing their shirts. Many of these assets are back in American hands.

But when it became China’s turn to do some shopping of American assets, resolutions were filed in the US Congress and newspaper editorials were written on the potential threat to national security. All the fuss is being created because the Chinese were proving to be fast learners of the American game called open trading system or globalization. China is proving to be better in business and geopolitics than the Japanese ever were.

Economist Paul Krugman wrote in his New York Times column "we should be relieved that at least for now the Chinese aren’t dumping their dollars; they’re using them to buy American companies." Krugman is of course commenting on the reality that many Americans refuse to acknowledge: that America’s ability to maintain its spendthrift ways is dependent on the Chinese willingness to finance them.

The Chinese had been buying American IOUs in the form of US Treasury bills so that it now has a hoard of over $600 billion, well in excess of what it needs to defend the yuan. Krugman wrote that sooner or later, "either they would stop buying American I.O.U.’s altogether, causing a plunge in the dollar, or they would stop being satisfied with the role of passive financiers, and demand the power that comes with ownership."

Well, they are getting tired of just buying IOUs. They are starting to buy American and other world assets with their dollar hoard. The Chinese appliance maker Haier is buying Maytag, an American appliance manufacturer, probably as a way of quickly entering the American market without the expense and effort required to introduce a new brand. The Chinese computer maker Lenovo adopted the same strategy when it bought the personal computer unit of IBM.

The other company the Chinese want to buy is Unocal, the California-based energy company that pioneered the exploration and development of geothermal energy here in the Philippines. Unocal is also well diversified in terms of having energy assets all over the world, notably in dangerous and isolated places like Afghanistan and Myanmar. In fact, an overwhelming part of its assets are outside of the US.

Well, Unocal is not Rockefeller Center or Pebble Beach. The Chinese offer, in excess of what another American company, Chevron, offered, is also symbolic of the growing rivalry between China and America for leadership in the world’s economic and political spheres. China’s advantage is its brimming treasure chest. Then again, China’s treasures are nothing more than American IOUs that are valuable only for as long as China is willing to buy more of it.

Wow! That’s quite a sumo wrestling match! The two world powers are so tightly in each other’s embrace and they can‚t afford to hurt each other too much. In a sense, consider all the hot air from American politicians as nothing more than acoustics designed to distract the ordinary American voter. Even American administration officials are being cautious because they know if China and America go too far, both countries, and maybe the world as well, will pay dearly.

In the meantime, a Happy Fourth of July to our American friends!

Donors

Now, here’s Dr. Ernie E.

A man and a woman were waiting at the hospital donation center.

Man: "What are you doing here today?"

Woman: "Oh, I’m here to donate some blood. They’re going to give me $5 for it."

Man: "Hmm, that’s interesting. I’m here to donate sperm, myself. But they pay me $25."

The woman looked thoughtful for a moment and they chatted some more before going their separate ways. Several months later, the same man and woman meet again in the donation center.

Man: "Oh, hi there! Here to donate blood again?"

Woman: [shaking her head with mouth closed] "Unh unh."

Boo Chanco’s e-mail address is [email protected]