ECONOMY-GUYANA: Multilaterals Approve Debt Relief

By Jim Lobe Reprint | | Print |

Jim Lobe

WASHINGTON, May 14 1999 (IPS) - Guyana has become the third country after Uganda and Bolivia to qualify for relief under the 1996 programme allowing the world’s poorest countries to reduce debt owed to international financial agencies, such as the World Bank.

The Bank announced Thursday that it would support a debt-relief package reducing Guyana’s external debt by some 256 million dollars in net present value (NPV) terms – or about 14 percent of its total external debt.

The World Bank will write off 27 million dollars owed by Guyana while two other major multilateral creditors, the International Monetary Fund (IMF) and the Inter-American Development Bank (IDB), will contribute more than 65 million dollars.

The debt relief follows Guyana’s successful implementation of structural adjustment programmes (SAPs) since 1991 and will reduce what is called the NPV debt-to-exports ratio from 151 percent to 115 percent, according to the Bank.

That means that to service its debts, Guyana will pay out each year 15 percent more than what is earned from exports – mainly timber, bauxite, rice, and gold – rather than 50 percent more than the value of those exports.

Still, the reduction may not be enough to restore the economy to good health, according to both Bank officials and Guyana’s Finance Minister, Bharrat Jagdeo. “Even after this assistance, we will be spending over 40 percent of our budgetary resources for debt servicing,” he said.

“We aren’t fully satisfied that it will be sustainable,” said one World Bank official.

While he insisted that debt service would take up one-third of the government’s budget, “we’d prefer to bring it down to 25 percent at least.”

As part of the package, the Paris Club of bilateral donors, committed itself to reducing Guyana’s bilateral debt by about 91 million dollars in NPV terms when it meets in July.

Guyana’s total debt in nominal terms stood at a little over 1.41 billion dollars, of which about one billion dollars was owed to multilateral agencies.

In NPV terms – a complex calculation that determined the current value of different kinds of outstanding loans with different maturities, repayment periods and interest rates – total debt was estimated somewhat higher.

While bilateral donors have often provided debt relief for poor and even not-so-poor nations, multilateral agencies like the World Bank and the IMF were prevented by their internal rules from doing so.

Pressure to change those rules mounted steadily during the 1990’s, however, when it became clear that multilateral debt was becoming the major source of debt for many of the world’s poorest countries and that the debt burden for these countries had become essentially unsustainable.

The result was the 1996 Highly Indebted Poor Country (HIPC) initiative, designed to permit the multilateral financial institutions to reduce debt owed them by the world’s poorest countries whose debt burdens had become unsustainable.

To actually gain that relief, the IMF and the Bank said eligible countries would have to successfully implement SAPs for a period of at least six years.

The HIPC initiative has since been widely criticised – mostly by non-governmental organisations (NGOs) but even by the Bank itself and several of the world’s most important bilateral donors.

They deemed it too restrictive in determining eligibility, too onerous in its terms and timetable; and too stingy in providing the kind of relief which could revive development among client countries.

Of the 41 nations eligible for HIPC coverage, only two – Uganda and Bolivia – received relief before Guyana joined them Thursday.

In nominal terms, Guyana owed the multilateral agencies about one billion dollars and bilateral creditors another 400 million dollars – about 75 percent of which is owed to Trinidad and Tobago, according to the World Bank. Trinidad will take part in the Paris Club meetings in July.

On a per capita basis, Guyana remained one of the world’s most indebted countries.

Each person in Guyana theoretically owed about 2,280 dollars in debt and per capita debt service amounted to about 150 dollars, compared to an annual per capita income of only about 800 dollars.

While Guyana’s economy has done fairly well in recent years – it grew about seven percent in 1997 – it endured major shocks last year which resulted in a negative growth rate of about 1.3 percent, according to Bank officials.

That performance was caused in part by bad weather associated with El Nino, the East Asian financial crisis – which reduced demand and prices for its traditional exports – and domestic political problems resulting from the most recent elections.

Bank officials said they hope to “front-load” HIPC benefits to reduce pressure on the government’s budget.

Altogether, according to the Bank, the package should amount to about 3.5 percent of gross domestic product (GDP) on average during the 1999-2003 period and two percent of GDP during 2004-09.

Both the government and the Bank said they hope to target the savings on efforts to reduce poverty and strengthen the country’s social safety net.