Delaying debt relief for Latin America's Poorest Country

 

Nicaragua is Latin America's poorest country, with some of the worst indicators for human welfare. Actual debt repayments are two and a half times spending in health and education combined and take more than half of government revenue. Even so, Nicaragua is paying only half the debt service it actually owes on its US$6 billion debt.

Thus Nicaragua seems a prime candidate for debt relief. Yet a new Oxfam International report shows that, at best, debt relief is four years away.

While Nicaragua is eligible for debt relief under Heavily Indebted Poor Country (HIPC) Initiative, it may not actually receive any debt relief under HIPC until the year 2002 or later. In the August 1998 IMF/World Bank paper which reviewed the progress of HIPC, Nicaragua's earliest “Decision Point” on debt relief has been proposed for 1999. Nicaragua will then have to complete three years of an IMF ESAF (Enhanced Structural Adjustment Facility) programme before actually receiving debt relief under HIPC in 2002.

Under HIPC, Nicaragua would have at least three-quarters of its debt cancelled. But even this would not be enough – debt service payments would still be more than government spending on health and education.

Oxfam International has proposed that HIPC be accelerated by developing a “human development window” within the initiative. Under this approach, if countries such as Nicaragua agreed to commit at least 85% of money freed by debt relief to poverty reduction initiatives, more debt would be cancelled and debt would be cancelled sooner. In the case of Nicaragua, debt would be cancelled by March 2000, one year from the proposed Decision Point, and debt service could be reduced to half the normal level under HIPC. For Nicaragua, this would release over $500 million between 2000 and 2002. With this finance, Nicaragua could, for instance:

• provide free universal primary education each year
• construct 1,500 pre-school classrooms, and rehabilitate 500 schools
• improve the primary level completion rate to from 34% to 70%
• improve access to primary health services for 1.2 million poor people
• improve water supplies to 600,000 people in rural areas
• provide complete sanitation coverage to the rural population

(for the full text of the Oxfam report)