The IDB’s decision this week to cancel $4.4 billion of debt held by region’s poorest nations won acclaim from some debtors, and the US Treasury – but warning notes were sounded on the deal’s limits by Guyana ’s president, Bharrat Jagdeo.
“Pardoning the debt demonstrates the bank’s commitment to economic and social development of the region,” Nicaraguan finance minister Alberto Guevara, told Emerging Markets. The agreement wipes $300 million of debt off Nicaragua ’s books, and will save the country $20 million in current debt service payments this year.
The decision is “transcendental”, and “will allow us to free up resources to strengthen our social development effort and expand access to education, health and improve citizen security,” Guevara said.
But president Jagdeo said that the deal would limit Guyana ’s access to concessionary funding. He told local journalists on Friday that it would bring “tremendous benefits”, but that “on the other hand we are going to see a reduction in our access to the [IDB’s] soft resources”. That “brings additional challenges”, he said to the local Stabroek News newspaper.
Jagdeo’s remarks appear to relate to the Board’s commitment to preserve the Fund for Special Operations (FSO), which offers concessional lending to the five countries who got debt relief. Criteria for economic performance will be used to decide on FSO allocations and ensure that countries do not become over-extended with debt, the IDB says.
Civil society groups that campaign for debt relief praised the write-off, but said that the issue of poor nations’ debt is far from resolved. “It was the right decision,” Vince McElhinny, Latin America programme manager of the Bank Information Center told Emerging Markets – but he noted that debt relief does not treat the causes of over-indebtedness.
To ensure that countries take on debt that is manageable, the IDB needs to put in place stronger accountability and transparency mechanisms in project cycles for new lending, he said.
The US Treasury commended the debt relief initiative, calling it a “landmark agreement.” Clay Lowery, Treasury Assistant Secretary for International Affairs, said the debt relief is “a critical step to reducing poverty and stimulating economic growth to help countries create the opportunities for upward mobility.”
The IDB Board of Governors’ vote cancels the debt to the bank, including interest payments, of Bolivia , Guyana , Haiti , Honduras and Nicaragua – heavily indebted nations of which the IDB was the largest creditor. It follows from the G8 multilateral debt reduction initiative launched last year.
The Board wrote off $1.0 billion for Bolivia , $467 million for Guyana , $1.4 billion for Honduras , $984 million for Nicaragua . It agreed interim relief for Haiti beginning this year and, in future, further forgiveness of up to $525 million for the Caribbean nation.
The decision was approved by 95% of the Board and had the support of all bank governors in the Americas . Nine European countries – who together hold roughly 5% of the voting power – abstained, bank sources said.