Nigeria, IMF and Chinese loans

Nigeria has once more featured in less than flattering light in the lens of the International Monetary Fund (IMF). While addressing the IMF/World Bank Spring Meeting in Washington USA during the week, the Director of IMF Monetary and Capital Markets Department, Mr Tobias Andrian cautioned Nigeria and other countries that have taken loans from China, to consider the terms of such transactions, especially when such do not tally with the prescriptions of the Paris Club arrangements. According to him, while there is nothing wrong with any country taking loans from China, the terms of such loans were usually out of tune   with the Paris Club arrangements, and hence questionable. His caution was informed by the situation where whenever such debts fall into default, and the   need to restructure them comes up, the borrowing nations end up being ‘shortchanged’, by the creditor.

Against the backdrop of global trade history, the IMF homily can be interpreted in at least two dimensions. In one dimension, it could qualify as a well-intentioned advisory from a benevolent guardian angel with serious concern for the vulnerable, Chinese debtor nations. In another vein it could also qualify as a face saving panicky measure by an adversarial global business-block, which has genuine fears over the creeping contraction of the trading field of its leading lights, courtesy of an equally hegemonistic, Chinese geopolitical agenda.

Before now the IMF, its sister Bretton Woods agency – the World Bank and some other global interventionist bodies have routinely issued advisories on the economic as well as political circumstances of the country, with each of such expected to reflect its state of affairs. In the same vein the messages have come in different forms – some with cheering news, and other with unflattering slants, to which the country also offered less than complimentary responses including dismissing same as complete falsehood, launched with tendentious motives. Typically, therefore Nigeria’s response to such messages is expected to be guided by the measure of congruence they enjoy with the government’s perception of the country.

It is in the context of contemporary realities therefore, that the last IMF advisory on caution over Chinese loans, qualifies for further attention, as there exist hard-nosed evidence to justify whatever concerns it addresses. For instance, both on the African continent and other parts of the world, several debtor countries that enjoy loan facilities from China, are compelled to suffer irredeemable reverses in their national fortunes, when and if the loans run into default or require restructuring. In counties like Zambia, Uganda and others, default on Chinese loans have led to unprecedented repercussions in bilateral relationships between them and their creditor.

The foregoing notwithstanding, the recourse of developing countries especially in Africa like Nigeria, to Chinese loans was driven by several factors – especially the need to bypass the increasingly suffocating credit conditions in their trading relations with the Western countries who are also members of the Paris Club. Members of the Paris Club dictated term of trade which largely restricted the meaningful growth of the debtor nations. Hence the latter were compelled to embrace the Chinese who were waiting in the wings, and were all too willing to take over the vacuum created from the switch in trading partners by the debtor nations.

The Paris Club is an informal group of member countries who as official creditors provide loans to needy countries with respect to balance of payment settlements. They usually act in concert to provide not just  loans but whatever associated  action in that respect. The merit in their transactions depends largely on the multilateral nature of such which provides guarantee that no debtor nation can be subjected to sudden adverse twists, in its debt obligations. This condition extends to instances when debtor nations face defaults and require restructuring of such debts.

However, the downside of the Paris Club arrangements is that whereas their loans are governed by multilateral terms and conditions, the individual member countries often execute trading relations with the debtor nations in disfavour of the latter. Hence, several decades of trading between the Paris Club members and the debtor nations have hardly provided optimal dividends to the latter. The smart Chinese discovered this weakness in the ties between the Paris Club members as well as their trading partners in the developing world and cashed into the opportunity so offered.

In their bid to displace the traditional trading partners of the developing countries, the Chinese offered mouth-watering trading conditions to their newfound business partners who swallowed same hook, line and sinker- just like a hungry fish that sees a tantalizingly wriggling worm at the end of an invisible fisherman’s line and hook, in the vast expanse of the sea. Only a force stronger than hunger can force it to avoid the seemingly ready meal. Today many of such new patrons of Chinese loans are trapped into accepting conditions that mortgage the future well-being of their nations, if they eventually default.

Meanwhile the Chinese inroads into the traditional trading fields of the Western countries has not only generated loss of market for the latter. The Chinese come with incomparable compatibility with their new found trading partners as they are less fastidious with respect to the inherent handicaps of the operating environment of their developing world. This factor alone fuels the concern of the West that the Chinese are not on a casual picnic, but have come as an occupation force.

Hence, while the homily advocated by the IMF through Tobias Andrian may sound friendly to the institution, it needs to go beyond such a platitude to address the growing swing of trade relations from the West to the Chinese. The institution   needs to seek ways and means for correcting the unfriendly trading practices of the West vis a vis the developing world who they shortchanged in the first place, and unwittingly drove into the waiting hands of the Chinese. This is an old debate, hence does not require too elaborate equivocation of its thesis.

Meanwhile, in the light of the foregoing lessons abound for Nigeria as a debtor to both members of the Paris Club and China – a non-member. Many observers have cited the inherent exclusivity between the two systems – Paris Club and China, to believe that the Chinese loans to the country may not enjoy full compliance with the seemingly less demanding conditions of the former.

We can still enjoy the best of two worlds by reconciling the benefits of Chinese loans with the more liberal terms of the Paris Club arrangements. The IMF is therefore right in this respect.