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You are here:Home>>Strategic Research & Analysis>>Greece 53.5% Debt Write-down: Nigeria and Africa can do better
Tuesday, 27 March 2012 21:38

Greece 53.5% Debt Write-down: Nigeria and Africa can do better

Written by Emeka Chiakwelu
A child in a suburb of Abidjan receives an oral polio vaccine, one of many interventions that has reduced high infant mortality in Africa A child in a suburb of Abidjan receives an oral polio vaccine, one of many interventions that has reduced high infant mortality in Africa

Nigeria received 18 percent write-down on her 2006 debt payment, Greece received 53.5 percent

History was made when the highly indebted Greece received 53.5 percent write down restructuring on her initial debt deal from its sovereign bondholders. The struggling southern European nation "Greece implemented the biggest debt write-down in history ... swapping the bulk of its privately-held bonds with new ones worth less than half their original value. Although the exchange will keep Greece solvent and at the receiving end of billions in international rescue loans, markets were underwhelmed amid fears that the country's debt load still remains far too heavy,” Associated Press reported.

 

To enforce the debt swap the application of collective action clauses was utilized to approach the rate of 95.7 percent as was confirmed by Greece finance department. The Greece bond holders will be losing 53.5 percent of the face value of the original bonds. As this deal went through it will lower Greece debt by $190 billion and prepare the country for the second round European bail-out.

 

Bloomberg stated that "Holders of at least 60 percent of the Greek bonds eligible for the deal, including Greece’s largest banks, most of the country’s pension funds and more than 30 European banks and insurers including BNP Paribas SA and Commerzbank AG (CBK), have agreed to the offer. That brings the total to at least 125 billion euros ($166 billion), based on data compiled by Bloomberg from company reports and government statements."

 

Associated Press further reported that the scope and dimension of the deal was made known by statement issued by Greece Finance Ministry that the “bonds issued under Greek law with a total face value of €177.2 billion ($232.5 billion) were exchanged. A smaller batch worth €28.5 billion, issued under foreign law or by state enterprises, will be swapped in coming weeks."

 

Nigeria during her exit from 2006 Paris Club of Creditors was granted a merely 18 percent write down for her $36 billion she owned to mostly European creditors. At the end of the deal Nigeria paid almost $(15-20) billion to pay off the debt. The international media made sure that every person and hamlet heard about the 'wonderful and generous’ news on how Nigeria has been offered a great helping hand from the Paris club of Creditors. The only one thing that was missing on the news report was the original principal amount Nigeria owned and the subsequent higher interest rates and arrears that made it possible to transfer such an enormous wealth to the foreign syndicates.

 

Greece is not by any means a third world nation, it has modern infrastructures and her people are relatively secured. Greece has 24 hours electricity, clean and treated drinking water gushing out from the water pumps, paved roads together with well paid, trained and equipped police force that maintained peace and order. Greece has political stability and security that made it possible to attract investors. All things being equal, why was Greece given this enormous write down and Nigeria a relatively poor and third world country was not given a quantifiable break that will make a difference in the lives of average Nigerians?

 

At the time Nigeria was convinced to transfer almost $20 billion to first world and developed nations mostly in the continental Europe, seventy percent of Nigerians were living in penury poverty and depravity surviving with less than $1 per day. The ugly head of AIDS/HIV virus was enveloping the nation and the healthcare facility was in dire straits. Nigeria's  high infant mortality rate was among the highest in the world averaging 200-300 per 1000 live births. Nigerian educational system was in shambles and teachers' salaries in most cases were insufficient and were rarely paid on time. There was and still poor security, the protection of lives and property were minimal. Yet with all these wellbeing abysmal indices Nigeria received only 18 percent write-down even with the ever and continuous servicing of the debt from time immemorial.

Many of these nations in southern hemisphere especially in Africa have to qualify as a Heavily Poor indebted countries (HPIC) before they can receive debt relief and write down. Many African nations that were struggling to pay their debts were saddle with austerity measures before they qualifying for HPIC and these stringent conditions and criteria are back breaking. The prescriptions have become more deadly than the disease - those conditional ties leave them poorer with infant industries porous to protection, less productive, weaken currencies and in financial shambles. But Greece has not even implement its own austerity measures before she received 53.5 percent write down on its first debt deal.

 

To further compensate Greece for mustering the courage to make debt deal, IMF just approved euro28 billion ($36.56 billion) for Greece. The European Investment Bank (EIB) will soon be putting a finishing touch to disburse $1.31 billion to Greece.

 

The goodies are still flowing into Greece, Reuters reported, “Greece averted the immediate threat of an uncontrolled default on Friday, winning strong acceptance from its private creditors for a bond swap deal which will eat into its mountainous public debt and clear the way for a new bailout” and now "With euro zone ministers set to approve the 130 billion euro ($172 billion) rescue."

 

International Monetary Fund (IMF) was quite impressed with the just concluded deal made by Greece that was why it approved euro28 billion ($36.56 billion) in the absence of austerity measures that suppose to come when Greece will make its second debt deal. IMF is now logical even patient and benevolent to Greece. But IMF did not have any qualms counseling Nigeria to remove fuel subsidy for a nation that barely provide any social program to its masses. IMF did not see anything wrong for a poor country with over 170 million population to make a payment that was too perplexing for a nation struggling on how to feed its bulging poor population.

 

There was a back drop that probably made it possible for Greece to successfully complete the debt deal. Last December the energetic and trail blazer Mario Draghi, the head of Europen Central Bank (ECB) lower the interest rate to 1 percent and pumped in 500 billion euros into the euro zone monetary base.  With the interest rate of 1 percent, Europen Central Bank (ECB)  has just started to play a vital role in eurozone's monetary policy and this is a gutsy role for once a low key and timid ECB. With problem of liquidity solved, the solvent banks and private financial institutions were ebullient and energetic to participate in adjusting the economic wellbeing of eurozone.

 

This is how Reuters put it: "Mario Draghi, 64, has taken the helm of the euro zone's most important institution in the midst of Europe's deepest financial crisis since World War Two. He faces a seemingly impossible mission: satisfying German demands to focus on the ECB's main mandate of ensuring price stability, while at the same time dealing with market and political pressure from other countries to steer Europe out of a debt crisis that has engulfed Greece, Portugal, Ireland, Spain and even his native Italy. The back-to-back rate cuts took the euro zone's interest rate to a record low of 1.0 percent. But they also sent a clear message that Draghi's ECB would be decisive, pragmatic and prepared to ignore its powerful German contingent."

 

The point must be succinctly made that no one is suggesting that Nigeria and African nations should not deleverage their debts and fulfill their financial obligations. Greece has shown that the private sector and international financial institutions could be logical when they deem it necessary.  Africa also deserves same treatment.

 

Last modified on Thursday, 29 March 2012 13:54

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