Paris Club freezes, but does not cancel, debts for hurricane-devastated Central America

 

Jubilee 2000 Coalition has reacted with dismay and anger at the limited response of creditors at the Paris Club. At their meeting on 9^th December the Paris Club agreed to a 3-year moratorium on the debt payments of Honduras and Nicaragua, but failed to agree any additional measures. The two countries, neither of which was allowed to have a representative at the meeting, will follow the standard timetable for debt relief.

Nicaragua and Honduras are both included in the Heavily Indebted Poor Countries Initiative, but progress towards debt relief is agonisingly slow and experience has shown it to be hopelessly inadequate when it finally arrives. Nicaragua is set to reach a decision point in 1999, but it can then wait anything up to 3 years for debt rescheduling and reduction. Honduras is not scheduled to reach a decision point on its debt until 2001, and similarly may need to wait a further 3 years for relief. In order to qualify, Honduras will need to accept a structural adjustment programme, with strict conditions of economic and political reform laid down by the IMF and World Bank.

The meeting of the Paris Club shows yet again the failure of this secretive cartel to understand and respond to the needs of developing countries. Before the hurricane struck, roughly half of the populations of Nicaragua and Honduras were living on a dollar a day. US scientists described the natural disaster as the worst ever recorded in the western hemisphere. Thousands have been killed, hundreds of thousands made homeless. In Honduras, seventy to eighty per cent of agricultural production has been wiped out. Roads, bridges, even topsoil have been washed away; water supplies are contaminated and electric power has gone. Yet despite this tragedy, the Paris Club will not offer immediate cancellation of debts, but formally responds in a manner that suggests that these countries should be very grateful at the exceptional generosity.

“At the request of Nicaragua, the Paris Club creditors have decided...to defer, very exceptionally, all payments due by Nicaragua in the course of the next three years.”

"The Paris Club creditors have also accepted to grant Honduras, at its request and also very exceptionally, a deferral of payments for the next three years.”

Liana Cisneros, spokeswoman for the Latin America Jubilee 2000 campaign, said: “I and many people throughout Central America are deeply disappointed by the decision of the Paris Club to limit their assistance to a moratorium. I was in Honduras when the hurricane struck and there has never been such total devastation. Homes, roads, bridges were destroyed by Hurricane Mitch in days, yet the loans that helped pay for that infrastructure stay in place. The Paris Club needs its own hurricane to break it out of its scandalous complacency and force it to cancel debt rather than postpone its payment. Cancellation of both aid and export credit debt is an essential measure on the road to restoring hope to the millions in Central America whose lives have been turned upside down by this natural disaster.”

Adrian Lovett, Deputy Director of the Jubilee 2000 Coalition in the UK, said: “A moratorium without a serious plan for a long term debt reduction is unrealistic and naïve. Before the hurricane, Honduras and Nicaragua were paying $2 million every day on debt. They couldn't afford it then. Does anyone seriously believe they will be able to starting paying again in three years' time?

“We are particularly concerned about the Paris Club's treatment of Honduras. The creditors have made any debt relief after the three-year freeze conditional upon Honduras signing up for a structural adjustment programme. The people of Honduras do not need this sort of IMF programme at a time like this – they need to be allowed to get on with rebuilding their country, free of the burden of unpayable debt which still hangs over them.

“The countries that have lent money to Central America have a duty to act over this unpayable burden of debt. We're not asking them to put it off. We're asking them to write it off.”

• Creditors respond to the demands for debt relief, but they fail to cancel debts (4 December 1998)