On 17 November 2006, Governors to the Inter-American Development Bank (IDB) agreed to cancel US$2.1bn in debt out of US$3.5bn owed by the five Latin American HIPCs to the IDB (Bolivia, Guyana, Haiti, Honduras and Nicaragua). The IDB is the biggest lender in Latin America and these nations owe on average one third of their overall debt stocks to the institution.
 
IDB staff had admitted, in a recent leaked document, that cancelling this debt would seriously improve these countries’ debt sustainability outlooks and help achieve the MDGs. The document had also shown that Latin American HIPCs had benefited far less from the Multilateral Debt Relief Initiative (MDRI) agreed last year due to the exclusion of lenders in the Latin America and Caribbean region, something debt campaigners had argued was “unfair”. The document revealed that debt service savings across the 29 decision and completion point HIPCs had been on average 40% following implementation of the MDRI, but for the five Latin American HIPCs, this had amounted to between just 20-30%.
 
The announcement on 17 November by IDB President Luis Alberto Moreno follows intense campaign and lobby efforts by organisations across Latin America, North America and Europe. Over the last 12 months, the “Justice for Latin America” coalition – which included Eurodad, Latindadd, Fundación Jubileo Bolivia, Jubilee USA, Social Justice Committee Canada and Manos Unidas Spain among other groups – had targeted the IDB and relevant national capitals with letters, phone calls, faxes and face-to-face meetings. A request for a round-table discussion with relevant IDB officials on the issue had not been accepted however.
 
Eurodad welcomed the announcement by the Inter-American Development Bank, but called for the IDB to go even further. “The IDB has established an important precedent,” said Eurodad’s Gail Hurley. “Last year’s G8 debt deal can and should be expanded to include other key creditors. The decision follows clear recognition by the IDB that this cancellation will make a difference to these countries’ efforts to fight poverty and increase investment. We now urge the IDB to implement this deal immediately and without conditions. In particular Haiti should not have to wait until it completes the HIPC Initiative process in order to benefit, but should receive this cancellation now. We also urge the IDB to consider including more debts in the deal by agreeing a cut-off date of end-2004″.
 
The deal will see US$380mn written-off for Bolivia; US$249mn for Guyana; US$333mn for Haiti; US$717bn for Honduras and US$505mn for Nicaragua with a cut-off date of end-2003.
 
Debt ratios with end-2003 cut-off date

Source: Eurodad based on IDB figures *Note Haiti still has to begin the HIPC Initiative process

The deal follows months of protracted internal negotiations within the IDB as to how to finance the write-down. Key differences centred around replenishment of the Fund for Special Operations (FSO), the IDB’s concessional loan window for the poorest Latin American borrowers. 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 5 HIPCs the Dominican Republic, Ecuador, El Salvador, Guatemala and Paraguay – would be seriously compromised because the FSO depends in large part on reimbursements. The United States had wanted to separate negotiations on debt cancellation from discussions on FSO replenishment, but some Latin American HIPCs such as Bolivia had feared that this would mean they would see reduced concessional finance in the future, which would not help their longer-term debt sustainability profiles.
 
In the end it appears as though key financing decisions such as these have been postponed until early-2007, so civil society organisations must follow this closely to ensure that countries are still able to receive the amounts of concessional resources they need in the future. It seems as though an agreement in principle on debt relief was agreed last Friday and Bank staff will now have to prepare a paper for discussion by IDB Governors outlining principles for replenishment of the FSO, as with IDA last year. This will be discussed in January 2007 in Amsterdam. However the IDB President is on-record as having said “it’s essential to continue with the FSO, which is part of this institution’s DNA.” But although the IDB says that the framework agreed last week will ensure preservation of the FSO, it seems as though some countries – Bolivia and Honduras – will in the future receive a mix of concessional and non-concessional resources which means that the overall level of concessional borrowing they are entitled to from the IDB will be reduced. Moreover, like the IDA part of MDRI, it seems as though countries will have their new gross assistance assistance flows from the IDB reduced by the same amount. Civil society organisations will need to monitor these elements closely.
 
Campaigners had also called for a cut-off date of at least end-2004 to be implemented, as with the IMF and African Development Bank.  But because final signing of the deal will not happen until next year’s Annual Meetings of the institution in Guatemala in March, campaigners still have time to pressure the IDB to include more loans in this deal. The IMF also has to give its seal of approval to the macroeconomic policies being pursued by these countries in order for the IDB to approve the cancellation, something which campaigners strongly contest.
 
Finally, special attention also needs to be paid to Haiti. Under the terms of the deal, Haiti cannot benefit from any of this cancellation until it completes the Heavily Indebted Poor Countries Initiative. Haiti is just at the start of this programme which involves countries having to implement a whole series of economic and governance reforms in order to be awarded with the prize of debt relief at the end. But countries that have gone though this process already have experienced significant delays and serious disagreements over the reform measures the IMF and World bank insist they implement. This is likely to mean that Haiti will not benefit from any of this debt cancellation until 2008 or 2009 at the earliest. Haiti needs this cancellation now in order to support the country’s fragile peace and provide much-needed funds for an impoverished nation’s development.
 
On the whole, campaigners have welcomed these moves by the IDB and the decision also sets an important precedent: the G8 multilateral debt deal or MDRI can and should be expanded to include other important creditors. Eurodad now urges immediate implementation of this deal and will work with other organisations to monitor the terms of implementation of the deal and push other multilateral creditors to also quickly follow the IDB’s lead.

 
IDB Press Release “IDB Governors reach agreement on Debt Relief for Bolivia, Guyana, Haiti, Honduras and Nicaragua”
 
Justice for Latin America: Joint Eurodad paper making the case for Inter-American Development Bank debt cancellation

IDB Debt Cancellation: Where Are We Now?