West Africa Rising: Ivory Coast defaulting on loans, despite economic recovery

The scene of a chaotic power struggle earlier this year, Ivory Coast is now enjoying a recovery summer. But while it has the money to pay its debts, it is purposefully defaulting instead.

West Africa Rising is a weekly look at business, investment, and development trends.

Four months after French tanks trundled through Abidjan, forcing an end to Ivory Coast's civil war, the reemerging African nation has regained enough better-than-expected economic growth to honor its overdue debt payments – it's just choosing not to.

Earlier this year, Ivory Coast was the site of a chaotic power struggle between rival presidents who both claimed victory in a decade-delayed vote – then both proceeded to shut down banks, blockade one another's government, and dispatch soldiers into the streets of Abidjan.

Now that that's over, the once-bright economy – the Jewel of Africa, it was called – is enjoying something of a recovery summer.

The nation's farmers are harvesting and shipping several hundred more tons of cocoa than expected. The world's top cocoa growing nation – though Ivory Coast looked likely, during its civil war, to lose that mantle to eastern neighbor Ghana – should produce as much as 1.5 million tons of the chocolate ingredient this season, more than a third of all the cocoa the world will eat next year, the International Cocoa Organization said Thursday.

Then there's Ivorian industry: The nation's factories are churning out roughly the same amount of goods they were manufacturing this time last year, as if nothing ever happened. Last month, the government announced it had collected a third more tax revenue since the end of the war than it expected. It will spend $20 million of that loot each year to start its new airline, backed by Air France.

By 2012, the debt-encumbered country could qualify for a mammoth $3 billion in debt relief.

“The economy is recovering much faster than expected,” Standard Bank economist Samir Gadio says. “By year-end, there is going to be increasing evidence of a strong recovery, and 2012 should be even a greater year.”

The problem, Mr. Gadio says, is that the country isn't using any of its newfound prosperity to pay off the $2.3 billion in non-debt-relief-eligible commercial debt it incurred in 2010. Twice this year, first in January, then in June, the country missed minor but symbolic $29 million payments on that debt.

Last month, the government announced it would keep missing them. Instead, it is investing that money into rebooting its industry and cocoa sector.

"I think that [investors] would be happier with a government that missed a few [payments] and made it up later and had a strong recovery, than a government which met its debt service in a timely manner but failed to relaunch the economy," local director Wayne Camard of the International Monetary Fund, which backed the move, said in a Reuters interview.

That said, the decision is likely to further downgrade the country's perceived credit score, forcing Ivory Coast to spend more the next time it goes out to borrow.

“It's a very modest amount – they have the capacity to repay,” Gadio says. “[Lenders] understood why Ivory Coast didn't pay in January, during the middle of a political meltdown, less so in June, and much less so now. It's a trade off: Today's pressing needs? Or tomorrow's requirements?”

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