Cologne: the impact on Latin America

The table below gives an estimate of the possible debt reductions for Latin American and Caribbean countries following the agreement at the Cologne G8 summit.

Source:	GDF* 1999	GDF 1999	GDF 1999	Cologne	GDF 1999
Year	1997	1997	1997	Possible	1997
US$ millions, unless indicated	Total Debt Stock	Debt service paid	Exports	reduction in debt service due to Cologne	Aid debt
Country
Bolivia	5248	475	1464	154	1280
Guyana	1368	133	758	16	335
Honduras	4698	505	2421	84	980
Nicaragua	5677	326	1028	113	1202
Totals (4 countries)	16991	1439	5671	367	3797
Jubilee Countries
Haiti	1057	35	218	0	147
Jamaica	3913	641	3963	0	960
Peru	30496	2936	9500	0	124
Total (3 countries)	35466	3612	13681	0	1231
Total 7 countries	52457	5051	19352	367	5028

* Global Development Finance

Retroactive action for countries already through the HIPC initiative

Bolivia and Guyana have already passed through the Heavily Indebted Poor Countries initiative. Bolivia had $448 million in debt cancelled (measured on a net present value basis) ^[1] in September 1998, and Guyana $256 million in May 1999. However, the Cologne decision means that these two countries will receive extra debt relief on top of what they have already received in the HIPC process. This will lead to further debt service reduction for both countries. Bolivia is likely to pay $154 million per year less of debt service as a result of Cologne; for Guyana the reduction will be in the range of $16 million.

Honduras and Nicaragua

Nicaragua and Honduras will both benefit from the agreement in Cologne. Neither country had reached decision or completion point within the HIPC initiative, however following the devastation caused by Hurricane Mitch, they both received a debt moratorium from the Paris Club in December 1998 and will not need to begin repaying debts until February 2001. The Cologne agreement will mean that when they recommence debt service payments, these payments will be an estimated $84 million lower each year for Honduras and $113 million lower for Nicaragua. A decision on Nicaraguan and Honduran debt is likely next year.

Aid debts

The decision in Cologne was that outstanding aid debts to HIPCs would be cancelled. This comes 21 years after a recommendation by UNCTAD that creditor countries should cancel aid debts. The total amount of aid debts of the four Latin American HIPCs is currently $3.8 billion (face value). The cancellation of aid debts is included in the estimates above of the reduction in debt service.

Nothing extra for countries not on the HIPC list

Only those countries that are considered eligible for the Heavily Indebted Poor Countries Initiative will receive extra debt relief, so there will be no extra relief available for Haiti, Jamaica and Peru, even though all these countries suffer from severe debt burdens.

15^th July 1999

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Footnotes

^[1] Net present value is the measure of all the future debt service added and expressed in today's values. It can be thought of as the sum of money needed to be placed in an interest-bearing account which will suffice to pay off the debt as it becomes new. Where the interest on the debt is low, the NPV is generally lower than face value of the debt.