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Wednesday, April 28, 1999 Published at 10:48 GMT 11:48 UK

World: Americas

The burden of debt

The devastated nations also face a mountain of debt

The nature of the debt burden on the world's poorer countries was brought into sharp focus late last year, after the devastation wreaked across Central America by Hurricane Mitch.

As the International Red Cross sought to raise $7.4m in emergency aid in the wake of the disaster, the countries themselves - their economies and infrastructure shattered by the storm - were paying $2.2m every day in debt service to their creditors.

The impossibility of the situation in both Nicaragua and Honduras was behind aid agencies' call for their debt repayment burden be eased - if not wiped entirely.

[ image:  ]
Ann Pettifor, the director of the British branch of Jubilee 2000, a global grouping of charities and church organisations set up to fight the debt crisis, says the huge debt burden had been a strain on Nicargua and Honduras at the best of times.

"Now, when they have been hit by disaster, it is a noose around their necks, slowly being pulled tighter. Rich countries should lead the way by cancelling their repayments, year after year," she said.

International action

Debt repayment was placed firmly on the international agenda in the late 1970s when concern grew in the West that the Third World would not be able to pay back its debts. Since then, a number of plans from various countries have been put forward to try to ensure they do.

One of the major developments, which offered hope to countries like Nicaragua and Honduras, was the Highly Indebted Poor Country (HIPC) initiative.

Launched by the IMF and the World Bank in October 1996, it established a World Bank trust fund to offer debt-ridden countries relief from unsustainable burdens after they have been thoroughly examined to check they meet the criteria.

London-based World Bank spokesman, Andrew Rogerson, said before Hurricane Mitch both Nicaragua and Honduras were well on the way to establishing eligibility for the initiative.

He said Nicaragua's case was to have been put forward next year. Honduras was still some way short of establishing its HIPC status. He added, however, that following Hurricane Mitch, the most urgent need for both countries was cashflow, and long-term plans had been set back.

"The whole set of numbers have changed beyond recognition. The immediate concern is to get money flows back into those areas dramatically affected," Mr Rogerson said.

But even before Mitch struck, Jubilee 2000 was concerned that the HIPC initiative was not moving fast enough for the affected countries.

Nicaragua was unlikely to have received a decision on its debt relief until next year, and then another three years of waiting before receiving benefits.

The prognosis for Honduras was even more bleak with a timetable stretching well beyond 2001.

Clean slate impossible

Total disaster aid promised to Nicaragua and Honduras in the immediate aftermath of Mitch was about equal to what these countries amass in debt service bills in a matter of hours.

The Jubilee 2000 Honduras spokesman Fransico Marchado said: "We need debt cancellation now more than ever if we are to rebuild our devastated country."

[ image: The long-term outlook is bleak]
The long-term outlook is bleak
But such a proposition raises many questions. Where do you draw the line? What do you do about "good" countries which have worked their way out of trouble? What do you do about countries who have squandered past wealth and might do the same again?

The World Bank has said that although there is a great deal of sympathy for the devastated countries, it would be unfair, impossible and ultimately irresponsible to end the debt burden and walk away.

"If you don't have such a plan of action owned by the country then experience shows that the country doesn't grow, the poor don't benefit and any support is likely to be wasted," Andrew Rogerson said. He added that countries can only be helped if they have a good performance plan for the future in place.

He also said the rules have to be fair on an international scale.

"Around the corner there could be 20,30 or 40 other countries looking for favourable ways to handle their debt. Others would feel badly done by if their money that they had worked hard to pay off was used to pay off the debt of other countries." Mr Rogerson said.

"Many countries have something bad that happens to them and many have had to withstand the shocks of such events without what would effectively amount to insurance cover by their creditors," he said.

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