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TWN Info Service on Finance and Development(Nov06/03) 28 November 2006
The Inter-American Development Bank (IDB) has agreed to extend debt relief to five heavily indebted poor countries (HIPCs) in Latin America under the Multilateral Debt Relief Initiative (MDRI) in a deal which will see the debt stocks of these countries reduced by an estimated $2.1 billion. In an agreement announced
last week in Although the modalities for the IDB debt cancellation have yet to be finalised and the IDB governors will meet in Amsterdam in January next year to define the technicalities of the debt reduction framework, it has been reported that the deal will cover debts owed by the eligible countries to the IDB as of the cut-off date of end-December 2003. Debt campaigners,
while welcoming the IDB debt cancellation, have called for deeper debt
relief, including extending the cut-off date for eligible debts to end-December
2004 (as is the case for eligible debt from the IMF and the AfDF) and
upfront cancellation of eligible debt for Below is a report
on the IDB debt deal. It was published in SUNS #6150 With best wishes Latin American HIPCs to Get Further Multilateral Debt Relief By Celine Tan, 28 November 2006 The Inter-American Development Bank (IDB) has agreed to extend debt relief to five heavily indebted poor countries (HIPCs) in Latin America under the Multilateral Debt Relief Initiative (MDRI) in a deal which will see the debt stocks of these countries reduced by an estimated $2.1 billion. In an agreement announced
last week in Four of the five countries – Bolivia, Guyana, Haiti, Honduras and Nicaragua – have reached ‘completion point’ under the HIPC initiative and have already qualified for debt cancellation under the MDRI from two other multilateral institutions, the International Monetary Fund (IMF) and the International Development Association (IDA), the World Bank's concessional lending arm. Haiti has qualified for debt
relief under the HIPC initiative but it will have to complete the process
before qualifying for debt relief under the MDRI, including debt cancellation
under this recent IDB deal. This includes fulfilment of stringent HIPC-I
criteria, including compliance with a macroeconomic programme supervised
by the International Monetary Fund (IMF) and the development and implementation
of a Poverty Reduction Strategy Paper (PRSP). Debt campaigners say that
this means that Although the modalities for the IDB debt cancellation have yet to be finalised and the IDB governors will meet in Amsterdam in January next year to define the technicalities of the debt reduction framework, it has been reported that the deal will cover debts owed by the eligible countries to the IDB as of the cut-off date of end-December 2003. Countries may also have to demonstrate that their performance in three key areas – macroeconomic performance; implementation of a poverty reduction strategy (PRS) or similar framework; and public expenditure management (PEM) – have not deteriorated since reaching completion point, as required under the other MDRI deals. Debt campaigners have lobbied intensely over the past year for the inclusion of IDB debts under the MDRI as the institution represents the largest creditor in the Latin American region, and reports, including a leaked internal IDB staff document, have shown that Latin American HIPCs have benefited less from the MDRI due to the non-participation of Latin American and Caribbean creditors in the initiative. According to the European Network on Debt and Development (Eurodad), one-third of the overall debt stocks of Latin American HIPCs are owed to the IDB and while the MDRI has reduced or will reduce the debt servicing of the 29 eligible HIPCs by an average of 40%, this has only averaged between 20-30% for the Latin American HIPCs. The MDRI was introduced in September 2005 to operationalise the political outcome of deliberations at the G8 summit in Gleneagles in July 2005. The MDRI is to provide 100%, upfront and irrevocable cancellation of eligible debt stock owed by eligible countries to participating multilateral financial institutions and is separate from but linked operationally to the HIPC initiative. Twenty countries have now
reached the end of their HIPC-I process and have been, or will shortly
be, granted both debt relief from bilateral and multilateral creditors
under the HIPC-I and from the aforementioned four multilateral creditors.
Nine other countries are expected to complete the process in the near
future and a further 11 countries, including MDRI-qualifying countries will have their eligible debt stock irrevocably cancelled upfront by the three institutions which means that countries are no longer liable for the debt service falling due on the eligible credits or loans once the decision to cancel has been made. This cancellation is given after any relief is provided under the HIPC initiative. Compensatory financing will be made by bilateral donors to the relevant institutions to finance this debt relief. A consensus on the modalities of this compensatory financing has been cited as the reason for the delay in reaching an agreement on the IDB debt deal. Eurodad reports that the current IDB deal “follows months of protracted internal negotiations within the IDB as to how to finance the write-down” of the debt. As with negotiations for such financing at the IDA, key differences centred on donor replenishments for the IDB's concessional lending window, the Fund for Special Operations (FSO) from which the eligible debt stocks will be written off. There were concerns that without adequate compensatory financing from donors, the long-term sustainability of the facility would be seriously compromised. According to Eurodad, “if the FSO used its resources to finance this cancellation, its capacity to provide highly concessional finance to the poorest countries – which include, in addition to the five HIPCs, the Dominican Republic, Ecuador, El Salvador, Guatemala and Paraguay – would be seriously compromised because the FSO depends in large part on reimbursements” or repayments on loans by borrowers. However, in the announcement
of the deal, chairman of the IDB Committee of the Board of Governors,
Jose Carlos Miranda of Accordingly, it is expected that the IDB debt framework will mirror that of the IDA’s in which qualifying HIPCs will see their eligibility for new concessional financing flows linked to their cancelled debt service, that is, the amount of new concessional financing allocated to them will be reduced by the amount of debt service cancelled for that particular year. Debt campaigners, while welcoming
the IDB debt cancellation, have called for deeper debt relief, including
extending the cut-off date for eligible debts to end-December 2004 (as
is the case for eligible debt from the IMF and the AfDF) and upfront
cancellation of eligible debt for Jubilee Meanwhile, Eurodad has argued that Haiti’s eligible debt should be cancelled immediately along with that of the other four eligible HIPCs as experience has shown that countries undergoing the HIPC-I process encounter “significant delays and serious disagreements over the reform measures the IMF and World Bank insist they implement” as part of the debt relief operation. Campaigners have also called for the MDRI to be extended to other creditors and to non-HIPCs and for future donor financing to be additional to such debt relief measures and not calculated as including debt relief. The IDB press release can be found at: http://www.iadb.org/NEWS/articledetail.cfm?artID=3440&language=EN&arttype=PR The Eurodad report on the debt deal can be found at: http://www.eurodad.org/articles/default.aspx?id=744
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