STAR NEWS:  COMPREHENSIVE DEBT RELIEF FOR NIGERIA ? ________________________________________________________________________________________________ <> <>
Paris Club Creditors Agree in Principle on a Comprehensive Debt Treatment for Nigeria

Paris Club (Paris)

June 30, 2005
Posted to the web June 30, 2005

The representatives of the Paris Club creditor countries met in Paris on 29 June 2005 and expressed their readiness, consistent with their national laws and regulations, to enter into negotiations with the Nigerian authorities in the months to come on a comprehensive debt treatment.

They took note of the economic reform program implemented by the Nigerian authorities since 2003 and of their willingness to take advantage of exceptional revenues in order to finance an exit treatment from the Paris Club.

This announcement takes place after Nigeria has recently been declared eligible to IDA-only borrowing status and at a time when Nigeria has decided to renew closer relations with the International Financial Institutions.

Creditors welcomed Nigeria's willingness to conclude a policy support instrument (PSI) as soon as this new instrument is approved by the board of the IMF, to pay all its arrears towards 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 and a buy back at a market related discount on the remaining eligible debts after reduction.

This Agreement would be phased in relation with 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 also help Nigeria in its fight against poverty.

Paris Club creditors are ready to invite Nigeria to negotiate in Paris as soon as it has concluded a policy support instrument with the IMF.

_______________________________________________________________________________________________ Nigeria to get $18bn debt relief

<> Published: 2005/06/30 12:23:14 GMT

The Paris Club of creditor countries has agreed the outline of a debt relief package for Nigeria.

About $18bn (£10bn) of debt will be written off and Nigeria plans to buy back a chunk of outstanding loans.

The country owes the rest of the world $35bn, and the new talks are linked to an agreement between Nigeria and the IMF on debt repayments.

Nigeria is the world's seventh-largest oil exporter and Africa's most populous nation, but also one of its poorest.

About $31bn of Nigeria's debt is owed to members of the 19-nation-strong Paris Club. It has not received any fresh loans since 1992, but repaid $8bn debt since then.

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.

The UK's Chancellor of the Exchequer, Gordon Brown, said the debt relief combined with the debt buy-back would "mean there is 100% debt relief for Nigeria possible over the next six months".

The UK is Nigeria's biggest creditor and has been attempting to persuade other G8 creditors of the need for debt write-off.

'Economic reform'

The debt breakthrough came after Nigeria expressed its willingness to clinch a new deal with the IMF to pay its arrears to Paris Club creditors.

"The representatives of the Paris Club creditor countries... expressed their readiness, consistent with their national laws and regulations, to enter into negotiations with the Nigerian authorities in the months to come on a comprehensive debt treatment," said the group of creditor nations.

"They took note of the economic reform programme implemented by the Nigerian authorities since 2003 and of their willingness to take advantage of exceptional revenues in order to finance an exit treatment from the Paris Club."

It said the debt relief would be significant, and allow for long-term debt sustainability. The initial debt relief terms will be based on the so-called "Naples terms" - which are equivalent to a 67% reduction on the face value of debt and are applied to debts of poorest nations.

'Major development'

"As an initial negotiating position, it is welcome, but Nigeria will naturally press for a higher discount," said Nigerian senator Udo Udoma.

"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% within a year is a major development, I am excited by that."

Campaign group Actionaid welcomed the deal, saying that "Nigerians have been paying out in debt repayments nearly six times the amount they receive in aid."

"As home to one in five Africans, progress on debt in Nigeria is critical to progress on poverty in Africa," the organisation said.

And international development minister Hilary Benn said: "This deal will help to change the lives of millions of people in Nigeria.

"Today's deal is a major step in bringing a better future for the people of Nigeria, in a country in which seven million children receive no schooling at all and one in five die before their fifth birthday."

Story from BBC NEWS:

<°2WP06>°2WP06 Naples terms
1/ History

In December, 1994, Paris Club creditors agreed to implement a new treatment on the debt of the poorest countries. These new terms, called "Naples terms", grant two substantial enhancements with respect to <°3WP02>London terms, that can be implemented on a case by case basis, on the level of reduction and the conditions of treatment of the debt :

- for the poorest and most indebted countries, the level of cancellation is at least 50% and can be raised to 67% of eligible non-ODA credits. Creditors agreed in September 1999 that all Naples terms treatments would carry a 67% debt reduction;
- stock treatments may be implemented, on a case-by-case basis, for countries having established a satisfactory track record with both the Paris Club and IMF and for which there is sufficient confidence in their ability to respect the debt agreement.

As of today, <>34 countries have benefited from Naples terms.

2/ Eligibility

Eligibility for the Naples terms is assessed on a case-by-case basis, taking into account the track record of the debtor country with the Paris Club and the IMF and of various criteria, including having a high level of indebtedness, being <°3WP05>only eligible for IDA financing from the World Bank, and having a low GDP-per-capita (755 $ or less).

3/ Description

<°4WP02#22>Non-ODA credits are cancelled to a 67% level (after possible <°3WP06>topping-up). Creditors may chose to implement the 67% debt reduction by one of the two following options:
- "debt reduction option" ("DR"): 67% of the claims treated are cancelled (after possible <°3WP06>topping-up), the outstanding part being rescheduled at the <°4WP02#2>appropriate market rate according to standard table "<°6WP01>A1" (23 years repayment period with a 6-year grace and progressive payments). - "debt service reduction option" ("DSR"): the claims treated are rescheduled at a <°3WP07>reduced interest rate according to standard table <°6WP02>"A3" (33 years repayment period with progressive payments). In case of stock treatment, table A3 is replaced by standard table <°6WP03>"A5".

Two other options were also designed, but have been very seldom used:
- the "Capitalisation of moratorium interest" ("CMI") option, similar to the "DSR" option (with a reduction of 67% in net present value) but with slightly different repayment profiles; - the "commercial option", with longer repayment profiles but no reduction of the claims in net present value. It was agreed that creditors would refrain from using this option to very exceptional circumstances.

3.2. Concerning <°4WP02#22>ODA credits, they are rescheduled at an interest rate at least as favourable as the original concessional interest rate applying to these loans, according to standard table "<°6WP04>D2" (40 years with 16-year grace and progressive repayment). This rescheduling results in a reduction of the net present value of the claims, as the original concessional rate is smaller than the <°4WP02#2>appropriate market rate.

The reduction in the net present value varies from one country to another, depending on the original interest rate of the claims. By contrast, the Paris Club rescheduling has a positive effect on the expected value of the ODA claims, as the creditors salvage value relative to the recovery of otherwise defaulted amounts.

3.3. Naples terms also include the possibility for creditor countries to conduct, on a bilateral and voluntary basis, <°4WP03>debt swaps with the debtor country.

These swap operations may in principle be carried out without limit on official development assistance loans (ODA), and up to 20% of the outstanding amount or 15 up to 30 million SDR for non-ODA credits.

Paris Club creditors and debtors regularly conduct a <°4WP03>reporting to the Paris Club Secretariat of the debt swaps conducted.