Criticism mounts over debt relief

20/03/2007 | Lucy Conger

Provisions of last week’s $4.4 billion IDB debt relief deal have come under fire at the bank’s annual meeting in Guatemala City for reducing the impact of the write-off and creating uncertainty about future funding flows.

Luis Arce, finance minister of Bolivia, the second largest beneficiary of the write-off, told Emerging Markets: “It is a relief of $1.043 billion [for Bolivia], but the impact is less than that. We have to repay $300 million to the IDB so the relief is more or less $800 million, which is important for Bolivia.”

The IDB package for the five poorest Latin American nations will be distributed over many years, and the amount of resources to be freed up on an annual basis is relatively small, Arce said.

“The relief is not so much immediate, but will be around $40 to $50 million annually, this is not that great in annual terms but any relief is important to for us.”

The IDB is pardoning $1.4 billion for Honduras, $1 billion for Bolivia, $984 million for Nicaragua, $467 million for Guayana, and $525 million for Haiti beginning in 2009 after the Caribbean nation meets a series of technical requirements.

“Debt relief is not a panacea,” Ericq Pierre, senior counselor to the IDB executive director for Argentina and Haiti, told Emerging Markets.

Haiti sees gaps in the debt relief programme. When parceled out against the needs of the population, it seems small, officials say. “Of the five poorest countries, Haiti is the one receiving the least debt relief per capita,” Pierre says. Per capita income in Haiti is around $400 annually, against levels up to $1,000 per year for the other populations included in the debt relief package.

The debt forgiveness measure creates uncertainty about government finances, Pierre says. Flows of IDB funding to Haiti have actually dropped in recent years. In the past, Haiti received between $80 and $100 million in annually in IDB loans. Today, the impoverished nation is receiving $50 million in grants. “The government is concerned about receiving enough budget support,” Pierre said.

Haiti has $400 million in project loans from the IDB, an amount nearly equivalent to the amount of debt relief. Those active loans must be repaid.

To qualify for the debt relief, Haiti must first meet IDB performance standards in disbursing and executing the projects currently underway. Successful performance may require obtaining a waiver from the IDB on procedures such as the  requirement that all project bidding processes must have more than one bidder.

“It is hard to attract international firms to bid because of security concerns, and their proposals are expensive,” Pierre said.

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