Plea for Debt Relief Grows Louder

By Néfer Muñoz, IPS, 13 July 2000

SAN JOSE, Jul 13 (IPS)—Now more than ever, Nicaragua is calling for the cancellation of its foreign debt, which tops 6.3 billion dollars, following announcements earlier this week that the International Monetary Fund (IMF) and the World Bank plan to forgive the debts of neighbouring Honduras.

But economists told IPS Nicaragua's biggest problem right now is that debt relief efforts underway with the multilateral financial organisations have reached an impasse.

The principal reasons for this breakdown in the process are the charges of corruption made against the Arnoldo Alem n government and the lack of a national poverty reduction strategy, one of the basic requirements for access to the international debt relief scheme.

Debt reduction for Nicaragua is essential, as much and as soon as possible, Ricardo Zambrana, economist at the non-governmental Civilian Association for the Reconstruction of Nicaragua, told IPS.

Zambrana explained that debt is an obstacle for Nicaragua's social development and a problem of great magnitude because the debt is currently 12 times more than the country's total yearly exports, which average 525 million dollars.

It is impossible for us to pay the debt and simultaneously invest in development initiatives, he pointed out.

The situation is evident in the fact that 25 percent of the national budget is being spent on debt payments, while education gets only 14 percent of the public pie and health just 11 percent.

The economic relief Nicaragua wants is theoretically available from the IMF, World Bank and other international institutions through the Heavily Indebted Poor Countries (HIPC) initiative.

The HIPC programme, introduced in 1996, sets up a three-stage process, each with its own series of requirements and commitments for structural reforms in the beneficiary country.

So far, just 41 countries have been declared eligible, including three in Latin America: Bolivia, Honduras and Nicaragua.

The multilateral organisations announced Monday that Honduras had made it to the second stage, which will likely cut that country's debt by 900 million dollars, or nearly one-third of its total foreign debt of 3.1 billion dollars.

The Hondurans have definitely done things better than we have, acknowledged Nicaraguan economist N‚stor Avenda¤o, a consultant to private local companies and international organisations.

Among the requirements for reaching the second stage of the debt relief process is the application of three-year economic adjustments—based on a framework established by the IMF—and the presentation of an effective poverty reduction plan.

Avenda¤o said Nicaragua had failed on the second point because the National Council of Economic and Social Planning, entrusted with setting up the anti-poverty strategy, has not listened to the recommendations offered by non-governmental and civil society organisations.

However, government officials have played down such criticisms and seem to believe Nicaragua will reach the second stage of the debt relief initiative in September, when the IMF is to evaluate the country.

In order to obtain good marks at that time, the Alem n government must demonstrate that its anti-poverty plan is effective and prove that the country is in compliance with a set of economic measures, including privatisation of state-run enterprises and transparency in government activities.

One of Nicaragua's major problems is that it has lost prestige due to corruption, said Francisco Laines, former president of the Central Bank and a political analyst, in a conversation with IPS.

The government has been shaken up in recent weeks by a political scandal involving cheque fraud to misappropriate public funds.

Nicaragua's acceptance into the second stage of the HIPC initiative is essential, according to economic experts, though they also stress the need to establish a system of audits once the goal is reached.

It is necessary to ensure that the money that has previously gone towards paying the external debt is now used effectively for social programmes, the economists told IPS.