Ivory Coast-National Debt

To finance its development projects--given the paucity of domestic capital--Côte d'Ivoire borrowed substantial amounts abroad, especially during the mid-1970s. At that time, high prices for coffee and cocoa led Ivoirian planners to overestimate the potential of the economy and, consequently, undertake overly ambitious capital investment programs. By 1976 Côte d'Ivoire's high debt payments, together with repatriated profits and foreign worker remittances, produced a negative net reserve position for the first time in its history, despite continuing trade surpluses.

Following the drought and recession of the early 1980s, external debt rose even more sharply, reaching US$9.8 billion in 1985--about triple the level of five years earlier and more than three-quarters of the annual GNP (see table 8, Appendix). By 1981 total debt service amounted to about US$1 billion. Between 1978 and 1983, the ratio of debt service to export earnings rose from 13 percent to 31 percent.

Since the early 1980s, Côte d'Ivoire had engaged in a series of foreign debt rescheduling exercises with both private and public creditors. Faced with falling commodity prices and recession, Côte d'Ivoire asked to reschedule its debt with Paris Club donors; the request was granted in May 1984. By the terms of the rescheduling agreement, all payments on principal and half the interest payments due that year would be spread over nine years, with a four-year grace period. The London Club of commercial creditors also rescheduled the US$775 million in interest and principal due in 1984 and US$420 million due in 1985. In addition, the country obtained new credits equivalent to US$176 million, contingent upon enactment of a retrenchment program approved by the IMF that limited government spending and foreign borrowing.

As economic conditions improved in early 1985, the government signaled its intent to assume its full debt service burden in 1986 rather than negotiate a second London Club rescheduling agreement. At World Bank and IMF urging, however, Côte d'Ivoire in August 1985 arranged a multiyear rescheduling package with its foreign creditors that would allow the country renewed access to commercial capital markets while phasing in debt rescheduling over the next five years. The IMF approved a US$66.2 million standby agreement loan that was followed in September by a US$30 million World Bank loan to finance technical assistance in support of an industrial reform program. Earlier, Côte d'Ivoire had adopted a World Bank industrial sector reform plan, resulting in strong World Bank support for the country in its negotiations with private and bilateral creditors. This multiyear debt rescheduling exercise was the first of its kind in Africa and was intended to allow the country to "grow out of" its debt crisis.

By 1987, when Côte d'Ivoire was to start payments on the first installment on the debt that it rescheduled in 1984 and that then totaled approximately US$8 billion, the economy had not improved. The continuing decline in coffee and cocoa prices, which HouphouëtBoigny blamed on American and European speculators, cut export earnings by an estimated CFA F180 billion. At the time, the IMF projected a US$811 million current accounts deficit for 1987. The IMF also projected debt servicing costs for 1988 of US$1.4 billion- -roughly two-thirds of the national budget--as compared with the 1987 cost of US$1.5 billion. Payment was clearly out of reach. In May 1987, the government announced that it would suspend payment on its foreign debt.

The May 1987 decision to suspend foreign debt payments placed Côte d'Ivoire in the high-risk category for some trading partners and potential investors, even though the move was explained by Ivoirian officials as simply a political maneuver to win a fairer deal for Côte d'Ivoire and other African debtors. Nevertheless, by the end of 1987 the Paris Club, the IMF, and the government had negotiated a new economic recovery and structural adjustment program. The new package granted Côte d'Ivoire a six-year grace period and rescheduled all principal due in 1987-88 plus 80 percent of interest due (approximately US$500 million). Earlier, the World Bank had agreed to release the second US$150 million installment of a US$250 million structural adjustment loan originally approved by its board in mid-1986. Finally, disbursement of an IMF structural adjustment credit and a compensatory financing facility worth approximately US$235.8 million awaited the outcome of the London Club negotiations.

The IMF further warned the government that unless it lowered producer prices, it would face severe and persistent budget deficits for the foreseeable future. Although Houphouët-Boigny had declared that producer prices would not be reduced, CSSPPA officials conceded that some modification of producer prices was under consideration. The pricing formula being studied was similar to that applied in Cameroon, where prices reflected both the quality of a producer's crop and the previous year's commodity earnings.

For its part, the government reduced by 20 percent the 1988 capital spending budget from about CFA F179 billion in 1987 to CFA F144 billion to satisfy the IMF's recommendation for a more rigorous selection of investment projects. At the same time, the government rejected IMF demands to increase income taxes, limit family allowances, and cut guaranteed prices to farmers, claiming that such measures would jeopardize political and social stability.

Data as of November 1988