Britain and other European countries on Monday mounted what the UK Guardian called a “final attempt” at blocking the recently announced US$4.4 billion debt relief to five countries including Guyana.
The article said Britain argued that the plan, pushed through the Inter-American Development Bank (IDB) by the US and Brazil, was a “flagrant breach of the principle agreed at the Gleneagles Summit in 2005 that debt forgiveness should not come at the expense of other poverty alleviation programmes.” Last week, IDB President Luis Alberto Moreno hailed the deal as “a historic opportunity”.
“The agreement backed by our membership will help these countries free up resources to invest in quality education, health and other social services their citizens need to overcome poverty,” Moreno was quoted as saying.
But Britain’s International Development Minister Gareth Thomas was quoted in yesterday’s edition of the UK Guardian as saying: “We have been very concerned about this deal. We hope even at this late stage that discussions can take place to agree a better financing package for debt relief to these countries.”
The article said Britain intended to abstain in a vote on the package proposal for Bolivia, Guyana, Haiti, Honduras and Nicaragua, and is warning the IDB the proposal may affect future UK funding of the bank’s operations in Latin America.
Britain argued too, the article said, that the approach being taken by the IDB is inconsistent with the stance adopted by the World Bank and the African Development Bank, which have guaranteed that debt relief should be “ring-fenced”. The IDB was not formally covered by the agreement made at Gleneagles in 2005, but the UK said yesterday that Latin American countries should enjoy the same terms as poor countries in Africa.
“We are worried that the IDB won’t have as strong a focus on helping the poor in the region as it currently does,” said one UK source. “We are currently undergoing a review of our relationship with the IDB. The two things [the debt deal and the review] are not unconnected,” the Guardian quoted Thomas as saying.
The UK has only 1% of the vote at the IDB and accepts that the US and Brazil – which between them have a 40% stake – are almost certain to force through the deal. Brazil, the largest economy in Latin America, is seeking to ensure that the debt deal – worth US$3.4 billion now and US$1 billion off future interest payments – does not divert funds from the bigger developing nations.
“They are robbing long-term development to pay for debt relief,” one UK source said. “The UK intends to abstain because it would be daft to vote against debt relief, but it should not come at the expense of long-term development,” is the position of the UK and the other European countries.
Guyana’s part of the debt write off is US$467 million.
The same day the write-off was announced, President Bharrat Jagdeo had said that though it would benefit the country, it would affect Guyana’s access to concessionary funding and this could bring additional challenges. However, he did not comment on the implications.
IDB Country Representative Sergio Varas Olea had said the debt write-off was an important and historical achievement for the country, adding that it would now lead to fiscal policies, which were a lot more autonomous.
Responding to the president’s concern, Varas noted that the IDB would still keep supporting Guyana with new programmes and a significant portfolio that it had already implemented. However, he conceded that the availability of money for lending to less developed countries like Guyana out of a special programme was reducing.
“The thing is that the write-off was financed based on the programme created for the less developed countries which was around US$10 billion, and we use about $4 billion of that amount to clear off the debt of those countries, and so of course the availability for money in the fund now is not as much as we had, and so its going down gradually and with only about $6 billion left this would go down faster,” he said.
Varas further explained that the bank would therefore have to review the amount it drew from the LDC programme, as this would be the only way to keep it rolling. However, he said, a combination of options had been taken into consideration with the write-off decision.
The IDB representative said there were options for more funding, and this could be further facilitated if member states agreed to put more into the programme. In addition, the IDB was in the process of lobbying and doing fund-raisers among member countries to gather soft resources.
Varas said Guyana’s debt with the bank in relation to the size of the country was huge, and represented 60% of the Gross Domestic Product (GDP). “The amount in millions doesn’t say all… but when you are indebted to that level, this [was] a heavy burden though it was many soft loans,” he said. The write-off allows for taxpayers’ money coming from customs and other sources to be used for development purposes.
Meanwhile, the US Treasury Department in a statement issued yesterday commended the debt relief initiative.
That statement quoted the Treasury Assistant Secretary for International Affairs Clay Lowery as saying that the “landmark agreement follows President Bush’s call to address the debt sustainability of the poorest countries in the region, including grants and debt relief.” In its statement, the IDB said that under an agreement endorsed by governors of its 47 member countries, the IDB would forgive some US$3.4 billion in principal payments and US$1 billion of future interest payments owed by five Latin American and Caribbean countries.
The other countries which are benefiting from debt write-off are Honduras, about US$1.4 billion (including cancelled loan balances and forgone interest payments); Bolivia, US$1 billion; and Nicaragua US$984 million. Haiti will receive interim relief of US$20 million over the next two years. The bank had previously announced its support for the debt relief but it required approval by the governors of the member countries.
The release said the benefits would be effective retroactively to January 1, 2007 because Guyana, Honduras, Bolivia and Nicaragua had already reached completion point under the enhanced initiative for Highly Indebted Poor Countries (HIPC).
The last debt-relief initiative saw Guyana reducing its debt by about US$300 million bringing the total debt relief then to between US$850 to US$900 million. President Bharrat Jagdeo had met representatives of the four other countries on a joint strategy for the current debt relief on the fringes of the IMF Board of Governors Meeting, which he had chaired. He had said that the lobby for debt relief had been very effective and the US$2.1 billion debt the PPP/C government had inherited in 1992 had since been reduced to just under US$1 billion.