Nigeria’s decision to suspend repayments on its $33 billion foreign debt because of a desperate shortage of foreign currency reserves sends a stunning, even chilling, message both to oil producers and the industrialized world from where most of its loans came.
It is a watershed event that is bound to have ramifications. This is the first time that an oil producer has reneged on its debt — and Nigeria is not only among the world’s largest producers, its senior oil policy advisor, Rilwanu Lukman, is also current chairman of OPEC. It is no good pointing out that Nigeria has been in economic and political crisis for longer than most Nigerians care to remember or that mismanagement, corruption, crime and communal violence are so endemic that big business now shuns the country. That is of minor importance compared to the psychological impact this announcement will have worldwide.
As far as international perceptions go, oil is still seen as black gold — a passport to prosperity and development. Many will simply not understand how a major producer can default, especially when the price of oil is rising. It is bound to change attitudes to all oil producers, especially if they want to borrow: if Nigeria cannot afford to pay its debt, who else might be overindebted, the lenders will ask. At the very least, it is going to make the process of borrowing a lot tougher.
There is another, more immediately worrying aspect to Nigeria’s money problems. There was much speculation a month ago that Nigeria planned to quit the organization over its quota, which has been cut back 20 percent since the beginning of 2001. In the event, the rumors were squashed by OPEC chief Lukman who said that the country planned to remain an active member. But the cash needs have now come to a head — and there are still those in the country who would like to be free of OPEC’s restraints. Moreover, there are worrying reports that Washington would like nothing better than a free-for-all in Nigerian exports; it reckons it would make it less dependent on Middle East oil suppliers. It is rumored to be putting pressure on the government of President Olusegun Obasanjo, who has enough problems with threats of impeachment still in the air, to make the break.
His ability to withstand such pressure must be viewed as questionable. He will, of course, be well-aware of the outcry from the country’s highly assertive Muslim community should he be seen to be siding with the US at the expense of its traditional Islamic ties; but for the moment, the reality is that Nigeria cannot get any help from the IMF and its appeals to renegotiate its debt find little sympathy. He has little room to maneuver. The opportunity for Washington to buy Nigeria out of OPEC by easing its financial crisis is there, and it may well decide to use it.
A Nigerian departure from OPEC would be disastrous for all its members. A rescue package therefore needs to be made. Yet even that is a problem because Nigeria believes that an increase in its quota is the only answer. Even with a rising market, OPEC cannot afford that: it would unleash a flood of demands from other members. It is difficult to see a way out.
