DEVELOPMENT-GUYANA: IMF, World Bank Approve Debt Reduction Package

By Jim Lobe Reprint | | Print |

Jim Lobe

WASHINGTON, Dec 27 1997 (IPS) - The International Monetary Fund (IMF) and the World Bank Tuesday announced they had agreed on a debt- reduction package for Guyana that could eliminate about a quarter of the country’s billion-dollar debt burden by Dec. 1998.

A press statement released by the two international financial agencies said Guyana had realised “exceptional achievements” in implementing structural adjustment. It was in light of that progress, they said, that they are willing to accelerate the normal three-year period under their Initiative for Heavily Indebted Poor Countries (HIPC).

Nonetheless, relief will only be made available if Georgetown’s other foreign creditors go along with it – and if the government of newly-elected Prime Minister Janet Jagan continues implementing market-oriented reforms, the two agencies said.

The Guyana package is the fourth announced by the IMF and the Bank since they launched HIPC in late 1996. Other beneficiaries, which must implement tough structural adjustment programmes for at least three years, include Uganda, Bolivia and Burkino Faso.

In return, the four countries will receive a total of about 1.2 billion dollars in Net Present Value (NPV) terms, and about two billion dollars in debt service reduction over time.

Mozambique and Cote d’Ivoire are considered next in line for assistance, while Ethiopia, Guinea Bissau, and Mauritania also are likely candidates for 1998, according to financial officials.

HIPC was designed to provide substantial debt relief for the world’s heavily indebted and poorest countries whose debt burden is considered “unsustainable.”

The poorest countries owe a substantial proportion of their outstanding debt to multilateral agencies, like the Bank and the Fund, which, until HIPC was approved, were not authorised to reduce debt. Bilateral donors, on the other hand, may – and often do – reduce debt owed to them by poor countries through the Paris Club.

According to the Fund and the Bank, a country’s debt becomes unsustainable when its present value exceeds 200-250 percent of the value of its exports, and when servicing the debt consumers more than 20-25 percent of annual export earnings.

Many non-governmental organisations, notably Oxfam International, believe that these thresholds should be lowered and argue that the present scheme is not adequate to help poor countries overcome their debt burden. They also contend that the structural adjustment programmes which HIPC countries are required to implement tend to hurt the poorest and most vulnerable sectors of the population and serve to allocate investment in ways that actually create unemployment and increase poverty.

In a report released last April, Oxfam charged that HIPC “is being implemented more with a view to minimising the costs to creditors than to maximising the benefits for debtors, and poverty reduction considerations remain of marginal concern.”

In Guyana’s case, the Bank and the Fund stressed that the country will use the savings made possible by HIPC to strengthen its social programmes, particularly in health and education.

The 253-million-dollar value of the package is based on NPV terms. In reality, it will translate into savings of close to 500 million dollars in debt-service relief, according to the IMF and the Bank.

“In a country where around 45 percent of total revenues is used to service debt, the news of the approval of this initiative for Guyana is welcome,” said Guyana’s Minister of Finance, Bharrat Jagdeo.

“Apart from the positive developmental impact that these additional resources will have, they will also enhance our capacity to reduce poverty improve the access to and quality of education and health and accelerate civil service reforms,” he said, singling out Trinidad and Tobago for contributing to the package.

The two donor agencies stressed that Guyana is the first country to qualify under criteria established last April for economies which are “highly open” to global commerce and investment and which have made strong efforts to keep their fiscal affairs in order.

Such countries, according to revised HIPC policy, may be eligible to receive debt relief even if their debt-to-exports ratio is below 200 percent. Guyana’s projected ratio is running at 143 percent; with debt relief, it would be reduced to 107 percent, the two agencies said.

Assuming the other creditors agree, relief amounting to an NPV value of 35 million dollars will be provided by the IMF in Dec. 1998 in the form of a grant paid into an escrow account to be used to pay debt-service falling due to the Fund.

The World Bank will use the special HIPC Trust Fund, to which it already has contributed 750 million dollars, to buy 27 million dollars of debt owed by Guyana to the Bank’s soft-loan facility, the International Development Association (IDA). Those debts will then be cancelled, the Bank said.