Hurricane Mitch forces debt relief to top of agenda

Date: 26/11/1998

By Gareth Harding

PRESSURE is growing on EU member states to write off the debts of Central American countries devastated by Hurricane Mitch.

France has already cancelled the debts of the two worst-hit states - Honduras and Nicaragua - and is expected to call on its Union partners to follow suit at a meeting of development ministers next Monday (30 November). The Netherlands, the UK and Italy have also called for a freeze on debt payments to the Latin American countries and Spain has offered substantial concessional loans to the region.

The European Parliament has weighed into the debate by calling on member states to cancel the countries' debts and on international financial bodies to agree to a moratorium on repayments.

The World Bank, the International Monetary Fund and the Inter-American Development Bank have all agreed to review Honduras and Nicaragua's situation and, at France's request, a meeting of the Paris Club on debt relief has been pencilled in for the start of next month.

The combined external debt of Honduras, Nicaragua, Guatemala and El Salvador amounts to $17 billion (14.6 billion ecu), with the two worst-affected countries bearing the brunt of loan repayments. Manuel Marìn, the European Commissioner responsible for the region, argues that cancelling the debts is “much more important for Central America than a large reconstruction programme”.

Although the European Commission has no legal competence on the issue of repayments to individual EU member states, it wants to raise the issue of debt relief at the next meeting of EU finance ministers.

“Development ministers don't have their hands on the purse strings,” said a Council spokesman. “This is very much in the hands of finance ministers.”

But the issue will nevertheless be high on the agenda at next week's meeting of development ministers, who are also likely to trumpet their respective aid contributions to the region. Individual member states have already pledged a total of more than 70-million-ecu worth of aid and the Commission has promised to contribute over 30 million ecu.

So far, the institution has sent a parcel of emergency aid worth 6.8 million ecu, with Humanitarian Aid Commissioner Emma Bonino due to announce a second package worth 5-6 million ecu at next week's ministerial meeting. She will also report back on her high-profile trip to the region earlier this month. Bonino's spokesman said this week that the Commissioner had been “shocked” by what she saw. “Imagine Pompeii under water instead of lava,” said the official, who accompanied Bonino on her trip. “Lakes have been created, rivers have been rerouted and whole mountains have vanished.”

In a report prepared for a meeting of EU foreign ministers earlier this month, the Commission highlighted the scale of the disaster, which has left more than 10,000 dead and 2.5 million homeless. Describing the structural damage as “catastrophic”, the Commission warned that “years of economic growth might have been wiped out, with dramatic consequences” for living standards.

With the immediate emergency now over in Guatemala and El Salvador, and Nicaragua expected to follow shortly, attention has begun to focus on long-term reconstruction and development. An official from the European Community Humanitarian Office (ECHO) stressed this week that the EU had a duty to remain in the region after Central America had “disappeared from the newspapers”.

When Commission officials return from a fact-finding mission in the region, work will begin on long-term plans to rebuild the countries' infrastructure, with concrete proposals expected in the new year.

But although humanitarian aid workers have wecomed EU help for the region, many insist that aid is not enough and that the debt issue must also be tackled.

Sasha Pichler of the European Network on Debt and Development said aid without debt relief was “just giving with one hand while taking with the other”.

Rejecting claims that loan repayments are a purely bilateral issue, Pichler said next week's meeting of development ministers offered “a first chance to develop a common EU strategy on debt”.