Greece and Nigeria: A tale of two bailouts (1)

As it so often happens, the best hope for answers to thorny issues is by relying on history. To that effect, I would like to turn to Greece’s financial quagmire, her negotiation for a bailout by the eurozone authorities which has been very intense, if not controversial, and incidentally has a parallel to the recent situation where some financially insolvent states in Nigeria have requested for and received approval by President Buhari for a similar financial bailout.

The Greece experience, to some extent, differs from the situation in Nigeria because, while it’s the states that are requesting for bailout from the federal government from the financial mess in which they are embroiled and reflected in their inability to pay workers’ salaries, it is unlike the Greeks that are seeking bailout to avoid being declared bankrupt by the World Bank and the eurozone, which is a regional supra government of sorts.

Technically, both debt situations are similar because they are cases of insolvency to be resolved through fresh injection of cash into the economy. Greece’s banks have now been shut down with only a window of equivalent of maximum $60 per day allowable for withdrawal via ATM, just as approximately 26 Nigerian states which have been unable to meet salary obligations to civil and public servants require fresh funds.

For Greece to remain part of the 17 eurozone nations, there are basic economic standards that she must exhibit and conform with. One of the requirements entails yielding of sovereignty over how she manages her financial affairs to the eurozone authorities comprising European Central Bank (ECB) and European Commission Group, etc.

Greece, which is the cradle of democracy – if you recall the historical antecedents of Athens, the capital of Greece, in the evolution of democracy and civilization – has twice sought for bailouts in the past hence it’s having a tough time convincing the major creditors led by Germany and France for a third bailout. With a whooping debt profile of some $96 billion, Greece needs to first of all cough out between $7-10 billion to the ECB to get her economy cranking again. To qualify for the loan, eurozone leaders are demanding that Greece meets some severe conditions which include far-reaching reforms in the economy such as privatization of public assets, Value Added Tax, and pension tax, amongst others to be enacted into law by Greece parliament before drawing down on the funds to be escrowed and co-managed by the ECB.

Compliance with the reforms recommended by eurozone authorities entails application of austerity measures which most Greeks loathe and which government has been flouting, hence the economy has further sunk into deeper financial debt burden after two previous bailouts in the past five years. If the parties had not gotten to a yes agreement, the alternative would have been to get Greece forced out of eurozone for possible re-entry only after the next five years when that country might have gotten her financial act together.

Perhaps the tough stance by the ECB and the European Commission is derived from having been disappointed by two previous failures by Greece to turn her economy around after bailouts, but it is a lesson that Nigerian authorities must learn with respect to the huge sum ($2.1b from NLNG and Shell plus N250-300bn from CBN) that President Buhari has recently approved for disbursement to the debt-laden states without the necessary tough conditionality similar to the type imposed on Greece by the eurozone authorities. Of course, I’m not by any means suggesting that the FG bailout should be a poisoned chalice or that state governors should be put in financial straits. Rather, what I’m advocating is that the 26 or more Nigerian states may not be third-time bailout seekers like Greece but must we wait for them to default three times like Greece before strict conditions are applied to ensure that they don’t fall back into the debt trap after they receive the first bailout?

While not assailing the decision to bail out the states as the initiative is bound to reflate the already sluggish economy, especially at the micro level, some of us are of the view that President Buhari might have extended the hand of support to the ailing states without the required strict repayment terms (with respect to the N250-300bn CBN loan) tough enough not to make the governor’s, like the fictional Oliver Twist, come back for more.

In the absence of a cabinet or an economic council, a simple approach would have been for Mr President to invite banks to negotiate the bailout with the states on terms similar to what the International Monetary Fund or ECB would demand. After coming to an agreement, the FG could have provided the guaranty to the banks by depositing the $2.1 billion NLNG and Shell tax revenue plus CBN N250-300bn with the banks as guaranty. The Debt Management Office, already mandated to renegotiate the estimated N660 billion states debt to commercial banks, and CBN directed to raise another N250-300bn soft loan to the states could have been joined by any of the reputable international financial consulting firms like PwC, Ernst&Young, KPMG and other local Nigerian financial outfits to hammer out a sustainable debt repayment plan and at the same time help the states restart growth.

Amongst other benefits, in the course of negotiating the bailout, the areas of profligacy by the bankrupt states would have been identified with a view to plugging the gaping holes through which finances have been leaking. As it now stands, that opportunity might have been lost as Nigerians and policymakers may not have the opportunity of highlighting and proffering solutions to the apparent squandering of public funds by some of those entrusted with its husbandry, if the fraud allegations being levelled against governors currently being arraigned by EFCC is anything to go by.

Magnus Onyibe