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Finance minister of the year 2005: Ngozi Okonjo-Iweala, Nigeria

by Felix Salmon

In just two years, Nigeria's finance minister has helped to transform foreign perceptions of her country. Her crowning achievement was the Paris Club deal, but her reforms have much greater implications for Nigeria's economic future.



Okonjo-Iweala: Paris Club deal
will leave a lasting legacy
FINANCE MINISTERS NORMALLY lead unspectacular official lives. The best stay in their jobs for many years, slowly and steadily shoring up government finances and putting their countries on a path to sustainable growth and prosperity. The worst, meanwhile, have no regard for the long term, spend lavishly, and have little control over government policy or the broader economy.

Ngozi Okonjo-Iweala falls into neither category. Rather, she's that rarest of breeds: a spectacularly good finance minister who has achieved an enormous amount very quickly. She has led the economic team of president Olusegun Obasanjo only since June 2003, but in that short time she has transformed Nigeria's finances, successfully avoided the pitfalls of windfall oil profits, installed an efficient and hard-working group of highly educated technocrats to work for the Nigerian government, and – above all – come to a historic accord with the Paris Club of bilateral creditors to buy back all of Nigeria's $31 billion in Paris Club debts at an effective price of just 40 cents on the dollar.

What's more, Okonjo-Iweala has done all this in the face of entrenched opposition in Nigeria, in a country plagued by endemic corruption, and while living more than 8,000km away from her family in Washington.

For Okonjo-Iweala is in many ways the product of an American life, built, though, on a childhood full of lessons about tenacity and survival. After teenage years at the heart of the Nigerian civil war she arrived at Harvard in 1972 to take a first degree in economics. She went on to a PhD from the Massachusetts Institute of Technology, then straight into a 21-year career at the World Bank. By 2002 she had risen to become vice-president and corporate secretary for the World Bank Group as a whole, liaising between the board of governors and all of the Bank's disparate units.

Along the way she also served as economic adviser to president Obasanjo in 2000. When he was re-elected in 2003, he decided he needed her as finance minister. He was smart enough not to ask her directly: he got her boss, James Wolfensohn, to pop the question.

Okonjo-Iweala struck a hard bargain. She would have to be head of the entire economic team: there would be no undermining of her position from elsewhere in the government. And she stuck to her guns: after the president removed the budget and planning departments from her control, she resigned until he changed his mind.

Okonjo-Iweala also negotiated a $240,000 salary – 800 times Nigeria's per capita gross national income – which is paid for by the UN. Such a salary allows her to stay clear of suspicions of using her post for her own gains, rumours of corruption having tainted some of her predecessors. Her salary has, however, been an easy target for her many opponents in Nigeria.

For Okonjo-Iweala has attacked her portfolio fearlessly, making enemies especially as a result of her anti-corruption drive. The former inspector general of police, Tafa Balogun, was arrested and charged on 70 counts of corruption, while two cabinet ministers have been fired. Okonjo-Iweala helped to create the Economic and Financial Crimes Commission, which is charged with fighting corruption systematically, from low-level so-called 419 scammers (the emails offering millions of dollars for helping move money out of Nigeria) all the way up to the highest levels of government.

Okonjo-Iweala's most publicized achievement, however, is Nigeria's agreement with the Paris Club. The seeds of the agreement were laid shortly after Obasanjo was first elected. He did the rounds of world leaders, trying to get them to agree to debt relief for his country, for all of his first term. What he was looking for was Naples terms on Nigeria's debt – a 67% debt reduction, justified by a very low GDP per capita ($300) and very large debt burden.

"When it first started, we were looking for a conventional Naples deal and had been getting no traction," recalls Okonjo-Iweala. "The president had been trying for years. So when he hired me as finance minister, I said we would need an economic team to really get right the things that were not going right in the economy."

The political arguments for debt relief were not going to change – that Nigeria was Africa's most populous country, that the millennium development goals would never be reached without debt relief, that Nigeria was an important source of geopolitical stability in Africa, and so on. But the country had suffered so much economic mismanagement over the years that its biggest creditors – the UK, France, and Germany – weren't convinced that debt relief, in the absence of economic reforms, would do any good.

So Okonjo-Iweala's strategy changed. When she first met the G8 finance ministers in 2003, she didn't ask for any debt relief at all. Rather, she spelled out her economic policies, and told the assembled creditors that if and when she could show that those policies were working, then she'd ask for debt relief. "We would ask for relief because we had done the right things," she says.

The main plank of Okonjo-Iweala's policy is the National Economic Empowerment and Development Strategy, or Needs. She calls it "a very well defined structural reform programme" that is designed to provide macroeconomic stability through a combination of non-oil GDP growth, disinflation, management of foreign reserves, fiscal discipline and budget transparency at both the federal and state levels.

She says that simply publishing the amount of money that each state of the federation gets every month "has been a revolution". Now, she says, "people ask what is happening to their money at the local government level" and demand accountability.

But "the single biggest achievement", according to Okonjo-Iweala, was her success in delinking the budget from oil prices. "We know that oil prices are mean-reverting," she says. "We have to plan carefully for the day when oil prices come down."

Last year the budget was based on oil at $25 per barrel and this year it is based on oil at $30 per barrel: revenues beyond that are not automatically spent as they come in. As a result, Nigeria's foreign reserves have started rising, and the groundwork was laid for the Paris Club agreement.

There was still the problem of the IMF, however. The Paris Club doesn't agree to debt relief unless an IMF agreement is in place, and Okonjo-Iweala didn't want one. "If you want to stop reform dead in its tracks, the best thing you can do is to invite in the IMF," she says. "If Nigerians thought that this was being imposed from outside, it would never succeed."

But Okonjo-Iweala was convinced that her programme was tougher than anything the IMF could come up with. So she persuaded the president to invite the IMF to look over the country's books on a quarterly basis – something called a "policy support instrument". It's essentially a way in which Nigeria can certify to the rest of the world, and specifically to the Paris Club, that it is doing the right thing, without having a formal IMF programme in place.

Once Needs was in place and working, Okonjo-Iweala started thinking about how to get a Paris Club agreement. "We were told you need a champion," she says, so she started lobbying the obvious one: the UK government. Not only was the UK Nigeria's largest creditor, it was also about to chair the G8, where it wanted to emphasize debt relief.

Bilateral discussions took about six months, but in the end the UK was utterly convinced. Between them, senior UK Treasury official Jon Cunliffe and chancellor of the exchequer Gordon Brown, international development minister Hilary Benn, and prime minister Tony Blair proved a formidable team to go to bat alongside Nigeria to persuade the rest of the Paris Club to come to an agreement.

Meanwhile, Okonjo-Iweala was also working her World Bank connections, to have Nigeria reclassified as an IDA-only country from a blend country, officially receiving both IDA (International Development Assistance) money and IBRD (International Bank for Reconstruction and Development) commercial loans. In fact, the last time that Nigeria received any IBRD money was in 1993. With the help of a research paper written by Todd Moss, Scott Standley and Nancy Birdsall of the Center for Global Development, Nigeria was so reclassified, which made it much easier for the Paris Club to grant debt relief.

The next time the G8 finance ministers met, Nigeria was prepared. Okonjo-Iweala took on the job of persuading her old World Bank boss, Caio Koch-Weser, now at the German finance ministry, while president Obasanjo also worked the ministers in concert with Gordon Brown.

The official announcement emerged at the end of June: Nigeria would pay roughly $12 billion to settle, once and for all, its $31 billion in Paris Club debt. Nigeria will be the first country to buy back Paris Club debt below par, and the enormous reduction in its debts will be a lasting legacy of Okonjo-Iweala's term as finance minister.

Postcards from the IMF




Finance minister of the year 2014:
Mexico's Luis Videgaray


Full details of the award, including an in-depth interview with Videgaray and coverage of the reception at the IMF in Washington will be live October 10.