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Third World external debt development: The case of Latin America and the Caribbean
by Gladys Cecilia Hernández Pedraza
4 May 2007

Translated by : Choike information

The external debt still remains a heavy burden on underdeveloped economies and its regional distribution has changed in recent years. Various factors have had an influence on the new trends that can be observed regarding the total external debt accumulated by regions, among which the following are included: the financial instability of emerging markets, the deteriorated socio-economic situation in Africa, and the appeal of regions such as Eastern Europe, the Middle East and Asia for foreign investment.

Even in spite of the alleged economic recovery of global economy in 2006, the external debt continues to seriously hinder the economic and social development of the Third World.

International financial and economic organisations have declared that the United States experienced significant growth, as well as the euro area and Japan. But it really was the emerging markets - China and especially India - the ones to show rapid growth. Oil exporting countries also showed favourable development, although this was not the case for fuel importing countries.

It must be pointed out that metal and oil prices have set new ceilings, pressed by the surplus capacity restrictions in global markets, in the midst of significant GDP increases and - in the case of oil - due to the aggravation of geopolitical tensions in the Middle East, as well as the production risks in some of the major producing countries (especially Nigeria). Futures markets data lead us to think that oil prices will remain high in the near future.

In this international economic context, the financial tensions within markets have determined the hardening of the conditions affecting the Third World indebtedness process.

In 2006, the main central banks - in developed as well as underdeveloped countries - reacted by pursuing stricter monetary policies. The US Federal Reserve put interest rates up until June, pausing in August; the European Central Bank raised them again over the last months of the year; and the Bank of Japan brought the zero rates policy to an end in July.

The US dollar continued to lose ground before the euro and, to a lesser extent, the yen. The growing concern about inflation and monetary restrictions weakened the equity markets of developed economies.

These fluctuations affect underdeveloped countries’ debt rescheduling processes in a negative way. During 2006 there was, undoubtedly, a fundamental revaluation of economic risks by the major financial centres worldwide, which is most evidently reflected on interest rate adjustments, largely determined by the steep rise in prices.

According to International Monetary Fund figures from September 2006, the external debt amount of underdeveloped countries has remained unaltered around 2.1 trillion dollars. (WEO, 2006)

The external debt still remains a heavy burden on underdeveloped economies and its regional distribution has changed in recent years. Various factors have had an influence on the new trends that can be observed regarding the total external debt accumulated by regions, among which the following are included: the financial instability of emerging markets, the deteriorated socio-economic situation in Africa, and the appeal of regions such as Eastern Europe, the Middle East and Asia for foreign investment.

By 2006, the regions were participating in the total debt amount in the following manner: Africa 7.7%; Asia 28.3%; the Middle East 7.8%; Eastern Europe 21.1%; the Community of Independent States 11.5%, and Latin America 23.6%. (WEO, 2006)

According to estimates, underdeveloped countries paid 5.1 trillion dollars by way of debt service, that is, an annual average of 256 billion dollars, in the 1986-2006 period. (WEO, 2001; WEO, 2006)

The situation remains an extremely delicate one for those Third World countries affected by this scourge. None of the initiatives taken by creditors has provided a real solution to this problem.

In May 2006, a World Bank’s Independent Evaluation Group published a second evaluation on the progress of the initiative for external debt reduction concerning highly indebted poor countries - an initiative applied by international financial institutions as of 1996.

In between lines, this report reveals the process is about to be prematurely and completely discontinued, leaving millions of poor people worldwide paying with their lives the service of unsustainable debts to rich countries and international financial institutions.

The evaluation carried out by the World Bank’s Independent Evaluation Group collects statistical data which confirm the disappointment experienced by indebted countries in the face of the scarce and delayed results of the process in question.

The results obtained cannot be classed as positive: not only did the World Bank close the list of eligible candidates to the initiative at the end of 2006, but also the likelihood of many of the existing candidates reaching the finish line of the obstacle course set by the IMF for full debt relief is almost non-existent.

It is of public knowledge that countries are considered for the initiative if they are eligible under World Bank credit terms: having a net current value of debt accounting for 150% of their exports annual value, or having a debt value amounting to 250% of the national income, after the standard “Club of Paris” debt relief having been granted. Furthermore, they must have an acknowledged track record regarding reforms and have devised a “Poverty Reduction Strategy”.

In order to reach decision point, a country must have a track record of conomic stability, have prepared an interim “Poverty Reduction Strategy” Paper, as well as have cleared any overdue debt payment. As regards this point, World Bank and IMF officials carry out a loan-to-loan analysis of debt sustainability so as to determine the country’s level of indebtedness and the debt relief amount they should be granted.

The interim period between a country’s decision and completion points varies according to how rapidly the country can implement its poverty reduction strategy and maintain macroeconomic stability.

For a country to reach completion point, macroeconomic stability must be maintained pursuant to a programme backed by a Poverty Reduction and Growth Facility, carry out neo-liberal reforms in compliance with what was agreed at decision point, and implement a Poverty Reduction Strategy Paper successfully for one year. Once the country reaches completion point, full debt relief is granted - which then becomes irrevocable.

By April 2006, only 18 countries had reached completion point; 11 countries were at decision point and 11 countries were at pre-decision point. (World Bank, 2006)

This obstacle course includes setting up an IMF-approved reform process, reaching an agreement with the Paris Club of rich creditor countries, drawing up an interim Poverty Reduction Strategy paper in consultation with civil society in order to reach Decision Point, and from then on “keeping on track” with the Strategy and debt payments (including clearing any arrears) for one year, at least, in order to reach Completion Point.

The last revision of the initiative by the World Bank’s Independent Evaluation Group was submitted in 2003, being widely argued due to the little progress it revealed. Three years later, nothing has changed. Criticisms concerning this initiative remain the same:

• The amounts negotiated are few and always granted too late.

• It does not provide a “permanent way out” from the vicious circle of debt unsustainability and debt rescheduling for poor countries.

• It continues being used as a tool to promote the neo-liberal agenda of privatisation, elimination of controls over capital and trade liberalisation, which has often proved devastating to the economies of underdeveloped countries.

• Its approach to evaluating debt sustainability fails to take the human rights of debtor countries’ populations to basic education, health, water, etc. into account (and specifically to meet the Millennium Development Goals endorsed by all parties concerned) - rights which should take priority over rich creditors’ claims.

• The IMF (effectively controlled by rich creditor countries) and the Paris Club of rich sovereign creditors remain the judges in their own cases against debtors, thus denying the fundamental right to impartiality which is essential for justice.

This last revision emphasizes some progress made regarding the achievement of at least a certain reduction in the current debt burden of those countries that have attained Completion Point (18 countries).

In 2005, developed countries failed once again to fulfill their commitments in terms of Official Development Assistance - they were supposed to have contributed 123 billion dollars, in line with the GDP 0.7% target, but did not do so. (DAC, 2006)

The report also concludes that said reduction has been achieved through the use of additional resources, so that net flows to HIPC countries have increased. In other words, grants and other soft loans have continued to be disbursed at least at the same rate they would have if the initiative had not existed. According to the report, nevertheless, predictions as regards growth, exports and income used to determine how much relief to be granted are still too optimistic.

This evaluation demonstrates how the World Bank itself has reduced its ambition from attaining a “permanent way out” from debt problems, to “removing debt overburden within a reasonable period” - which, while acknowledging an objective fact, could not be more disappointing for the affected countries.

The ratios (debt-exports and debt-revenue) to be used in debt sustainability estimates have worsened for almost every country since Completion, and 8 out of the 18 countries have ratios above the initiative goals. That is to say, far from providing a permanent solution to debt problems, the initiative has become yet another step within the seemingly endless circle of debt rescheduling. (WEO, 2006)

In fact, the report explicitly acknowledges this by setting out some guidelines for “future debt relief efforts”. It even refers to the demands that since the beginning of the initiative many experts have stated: that the degree of debt relief is inadequate, that other reforms are necessary (for instance, as regards the balance of power within the international trade system), and that many more resources are needed to break this circle.

Moreover, the report makes it evident that the remaining candidates, far from being steadily progressing towards Completion Point and total debt cancellation, are falling behind on a number of indicators.

Another of the mass-media initiatives concerning external debt was the one promoted by the World Bank in order to cancel the debt of 17 highly indebted poor countries (13 African and 4 Latin American countries) prior to July 1, 2006. Nevertheless, this initiative has not implied a substantial financial effort for said institution - over the past 10 years (since the highly indebted poor countries debt relief initiative was launched), the World Bank has only spent 2.6 billion dollars, out of its 38 billion dollars net worth, to relieve debts for those countries. (World Bank, 2006)

This initiative strengthens creditors’ control over Third World countries through indebtedness. Precisely, in order to be granted this debt cancellation, the 17 countries involved (selected countries in Latin America and the Caribbean were Bolivia, Nicaragua, Honduras and Guyana) have had to comply with hundreds of requirements: dramatic reduction of social budget, massive privatisation, opening of markets, liberalisation of the economy to the advantage of multinational corporations and international investors.

All these countries have paid a very high price, in terms of human suffering, for the right to be eligible (for the initiative). In other words, countries obtain debt cancellation in exchange for chaining themselves to an economic policy contrary to national development interests.

Also, most creditors’ proposals would involve new multilateral debt negotiations related in some way to the World Bank and the IMF. The truth is that today, even though there still is some debate concerning the threat entailed by the debt crisis on global financial stability, most experts agree on the fact that banks, on setting up reserves, have taken proper measures to absorb the loss that might result from default by the major debtor in particular.

Latin American external debt

In 2006, presidential elections were held in 12 Latin American countries. In six of them, the left-wing candidates won and in other four, left parties made considerable progress. It could be pointed out that such development is due to the financial failure of the neo-liberal model, to the fact that the region’s economic growth has been disastrous over the past 25 years.

The relevant figures show that between 1960 and 1980, per capita income in Latin America experienced an 82 % increase in real terms, whereas between 1980 and 2000 it only grew by 9 % - and 4 % over the last period, 2001-2005. (ECLAC, 2005a)

Although in recent years, the region has shown a certain degree of recovery, in terms of economic growth, the so welcome favourable prospects concerning economic development do not reveal the inside aspects of the continent, or the heterogeneity found in growth levels. Most countries in the region show a lesser growth compared to other regions, in some cases it is even lower than that of developed countries.

Nevertheless, the significant growth experienced by some Southern Cone or Caribbean countries tends to overshadow the delicate situation that can be seen in Central American countries, Mexico and other Caribbean countries, with the exception of Cuba, Trinidad and Tobago, and Antigua and Bermuda.

The international scene, in general, has favoured those countries which export oil and metallic minerals; not only regarding a real demand that continued to increase throughout 2006, but also with strong pressure in international prices which maintain themselves at historical high levels.

The rise in prices regarding oil and certain minerals reflected an improvement in the terms of the exchange during 2006, which mainly favoured South American countries - not Mexico - whereas Central American countries, net oil importers and competitors of China in the US market of textile products, experienced the impairment of the exchange terms as well as underwent a reduction in their external sales.

Those countries which are exporters of agricultural raw materials and net oil importers at the same time have not reverted the age-old deterioration of their exchange terms observed as from 2000.

According to data provided by the Economic Commission for Latin America and the Caribbean, the region saw 2006 off with an estimated 5.3% growth, almost one percentual point above 4.5% in 2005, and three tenths above what was previously expected by this institution. (Latin America, 2006a; ECLAC 2006)

This would be the fourth consecutive year of growth experienced after the economic crisis of 2000, a recovery that initiated timidly in 2003, when the region showed a scarce 1.9% growth. (Latin America, 2006a; ECLAC 2006)

The countries showing greater growth are all Caribbean countries: Cuba (12.5%), Trinidad and Tobago (12%), Antigua and Bermuda (11%) and the Dominican Republic (10%); whereas in South America, the countries making the most progress were Venezuela (10%), Argentina (8.5%), Panama (7.5%), Uruguay (7.3%) and Peru (7.2%). (Latin America, 2006a; ECLAC 2006)

According to ECLAC, Venezuela has been favoured by high oil prices in global markets, while Argentina’s progress is basically due to an enabling international context, a reduction in their external debt burden, and an economic policy aimed at promoting domestic demand, with low interest rates and high exchange rates.

The countries lagging behind were Haiti and Guatemala, with 2.5%, followed by Brazil (2.8%), Nicaragua (3.7%) and El Salvador (3.8%). (ECLAC, 2006a; ECLAC 2006)

However, in 2006 the region showed a lesser growth than the group of underdeveloped countries (7% approximately). (ECLAC, 2006a; ECLAC 2006)

ECLAC anticipates a 4.7% GDP increase for 2007. The International Monetary Fund (IMF) agrees with ECLAC’s favourable estimates for 2007, foreseeing a 4.8% growth for the region this year. The World Bank (WB) expects a slightly higher growth: 5%. (ECLAC, 2006a;)

As for external debt growth, the 1980s as well as the 1990s were negative to regional development, owing to the great indebtedness accumulated.

According to ECLAC figures, the region’s external debt amounted to 679.18 billion dollars in 2005, falling to 632.84 billion dollars in 2006. (ECLAC 2006)

Nevertheless, as it was pointed out by the IMF in its September 2006 Report, the Latin American external debt would be 742 billion dollars in 2006. This accumulated debt shows a considerable concentration in some countries: 65% between Brazil, Mexico and Argentina. If we compare the external debt figures furnished by international and Latin American sources the contradictions are considerable. (WEO, 2006)

ECLAC puts an emphasis on the relative improvement of external conditions for trade in the region, the generation of primary fiscal surplus, the “growth” of economies, the debt rescheduling processes, and the appreciation of local currencies in relation to the dollar. These elements are responsible for the global reduction that can be observed in Latin American external debt statistics.

However, other international sources, among which Internacional Monetary Fund reports stand out, issue statistics which reflect the increasing growth of external debt in the region, especially as a result of the debt rescheduling processes and the granting of new credits.

In addition, ECLAC points out that, in 2006, regional investment was entirely financed through domestic savings and the surplus was allocated to reduce the region’s net indebtedness, accumulate reserves and set up assets of residents abroad. (ECLAC 2006)

This reveals how the trend to public debt increase present in some countries was reinforced during 2006, since government financing has been resting on domestic savings rather than on capitals obtained in international financial markets.

In 2006, regional investment as a percentage of GDP amounted to 21.7%, which represents an increase in relation to 2005. Yet, it has not surpassed the value registered in 1997 (22.7%), the highest figure recorded as from 1990. (ECLAC, 2006)

It must also be pointed out that the high levels of indebtedness observed in some countries of the region remain steady, resulting in their economic growth being particularly vulnerable to interest rate increases in the United States.

Moreover, the relative economic boom in the region resulting from the sector in charge of commodities and fuel exports, as well as the alleged reduction in the total amount of debt, have not resulted in social development.

In 2006, total exports and imports of goods in Latin America are estimated to have amounted to 1.2 trillion dollars, which represents 45% of the region’s GDP, whereas total trade increased by 20% during that year. (ECLAC, 2006)

Exports increased by 21% and imports grew by 20%; these figures were very similar to those reached in 2005. In real terms, the exports of goods rose by 7.1% while imports increased by 12.9%. The Latin American balance of goods is expected to have had a 22.4 billion dollars increase, that is, a 27% increase compared to 2005, and over 80% in relation to 2004. (ECLAC, 2006)

For the fifth consecutive year, the region recorded a positive balance in this 103 billion dollar account, which represents 3.7% of the region’s GDP. However, only eight countries (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Peru and the Bolivarian Republic of Venezuela) showed a surplus in their balance of goods, that is, one less country than in 2005 (Uruguay). Bolivia, Chile, Peru, Ecuador and the Bolivarian Republic of Venezuela registered the highest increase in their balance of goods (153.2%, 140.6%, 65.1%, 52.1% and 33.8%, respectively). (ECLAC, 2006)

As it has been previously stated, these countries whose exports showed the most dynamic behaviour are exporters of oil or raw materials that have developed favourably in international markets.

In practice, and following the logic of the system, the governments of the region took advantage of the current favourable situation to continue paying their external debt. Increasing surplus is being used to reduce external indebtedness.

In spite of this, the indebtedness ratio in many countries continues to be very high. In 2005, the external debt-Gross Domestic Product (GDP) ratio reached 45.9%, making the region extremely vulnerable to external shocks. (ECLAC, 2006)

Taking the exports boom, for the entire region, into account, a decrease in the external debt (international reserves deducted)-goods and services exports ratio can be appreciated.

The Latin American external debt, as a percentage of exports, soared from 215.2% in 1980 to a record 261% in 1990. Between 2000 and 2006, this indicator has fluctuated around 177%, as the regional average, although for many countries it is known to be above the regional average. (WEO, 2006)

As regards external debt management during 2006, the mechanisms applied were basically the following:

* accelerated internal debt issuing
* accelerated external debt issuing
* early payment of debt through international reserves
* purchase of billions of dollars in the market

The arguments currently used by governments to foster public debt growth are as follows:

The internal debt creditors are nations

Unlike the external debt, the internal debt is not the consequence of the fluctuation in interest rates; it is the result of other debts contracted by national Governments on different occasions.

The internal debt creditors are not foreign creditors

It is clear that the above statements are really contradictory and deceitful. After having exploited and bled the nations of the region with external debt interest payments for decades, the creation of mechanisms to demand payment of internal debt interests from these nations is unacceptable.

The transformation of external debt into internal debt exonerates creditors’ co-responsibility, who in most cases invested their capital in an irrational and uncontrolled manner and under conditions favourable to their own interests.

Indebtedness in underdeveloped countries was generally encouraged, both by international banks, which granted IMF approved loans, subject to its conditionalities and to annual evaluations of member countries’ economies; and by the governments of creditor countries, which gave political support to the alleged economic development strategies with external financing. From this perspective, it is evident that regarding the external debt crisis in the Third World, the responsibility lies in debtors as well as in creditors.

Even loans granted within the framework of the “Official Development Assistance” were subject to conditionalities and restrictions imposed by creditors. For instance, in the Citizen Debt Audit Processes, carried out in Brazil by members of the Jubilee South campaign, loans of this kind were subject to the following conditions: (Fattorelli C, 2006)

* there had to be a connection between tax collection and repayment of the external loan;
* the concession of external loans depended on the adoption of certain economic policies and the purchase of specific products;
* a foreign forum was to be agreed in the event of a dispute;
* loan granting was subject to the purchase of products coming from the US or from any other IMF member country;
* annual interests were to be charged for the non-disbursed portion of loans.

Likewise, the impact interest rates’ fluctuations had on the increase of regional external debt figures was too important for their consequences to be denied. Fluctuating interest rates affected more than 90% of loans contracted in the region throughout the 1970s and 1980s. (Fattorelli C, 2006)

The debt crisis in the 1980s was a direct consequence of the unilateral increase of interest rates by the United States.

Additionally, arguments are used in an attempt to hide the real power financial globalisation has currently reached. Public debt creditors are and will continue to be, national financial elites linked to foreign capitals. Some of the financial transactions carried out by foreign investors with the internal debt are good examples of this. For instance, the NDFs- Non Deliverable Forwards involve investment contracts between the foreign investor and the foreign bank with branches in countries of the region. This contract does not necessarily imply the entry of foreign currency into the country where the operation is carried out. (Rodrigo, L, 2006).

In fact, the foreign bank purchases internal debt bonds of a country or shares in other companies, such as pension funds and sends the profits abroad. Therefore, the real creditors of internal debts are not the nations themselves, but foreign companies and national financial elites. Nowadays, it is difficult to establish clear differences between national and foreign creditors, as in fact, everyone is allowed to send their profits abroad, without being controlled and thus cause the same loss to the economies in the region.

Brazil is a clear example of this process. The amount of NDFs operations in this country in early 2006 reached the amount of 70 billion dollars and the profits expected by foreign investments stood approximately at 10 billion dollars, which accounts for 70% of the amount of external debt interests paid by Brazil in 2006. (Rodrigo, L, 2006)

This conversion process from external to internal debt taking place in countries of the region is related to external debt issuing, through the issue of bonds in emerging financial markets.

Outstanding among the financial operations of countries of the region in international markets, was Argentina’s first issue of international bonds since the default declared in December 2001. In March, 2006, the government placed 500 million dollars of Bonar V bonds, as part of an issue plan totalling 1.5 billion. The other two issues (for amounting to 500 million dollars each) were conducted in early May and late July. (ECLAC, 2006)

Argentina returned to international markets issuing 500 million dollars in Bonar VII bonds in September and again in December. In addition to these placements in international markets, Argentina sold bonds directly to the Bolivarian Republic of Venezuela in the course of several sales up to November 2006, for an estimated total of over 2 billion dollars. That same month, both countries issued the “Southern Bond” for 1 billion dollars. (ECLAC, 2006)

This bond was issued in the Bolivarian Republic of Venezuela, with 50% consisting of Venezuelan principal and interest covered bonds maturing in 2017, 30% of Argentine Boden 2012 bonds and 20% of Boden 2015 bonds (the latter had been previously sold to the Bolivarian Republic of Venezuela. (ECLAC, 2006)

Another major operation was the issue of bonds denominated in Brazilian reais due in 2022. This was the longest maturity Brazil has ever offered on an international issue of local-currency denominated bonds. These bonds were issued on three occasions: 750 million dollars in September, 300 million dollars in October and 346 million dollars in December. (ECLAC, 2006)

In March, Mexico also issued 3 billion dollars in 11-year bonds, in what was the largest placement in foreign-currency-denominated benchmark bonds to date.

According to official statements, the aim was to raise funds in order to withdraw millions of dollars in more costly debt bonds from the market. Until September 2006, gross bond issues in Latin America and the Caribbean totalled 30.6 billion dollars - 12% less than the issues conducted in the same period the previous year. (ECLAC, 2006)

This reflects a downward trend in the proportion of external debt in the total public debt, while not necessarily implying a reduction in public debt but rather the opposite.

It could be stated that both mechanisms are inter-related: the conversion of external debt in internal debt and the issue of external debt bonds contribute to accelerate and increase expensive debts, since the accelerated issue of external and internal debt bonds is made at higher interest rates than those demanded by the IMF and includes shorter maturities.

Another negative aspect of these processes that are widely covered in the media is that creditors are the same in both cases, thus forcing the countries to remain under the supervision of international financial institutions, particularly when financial globalisation interests are at stake. In fact, the conditionalities imposed by the IMF and the World Bank will increase even more within regional economies, mainly through internal debt pressure.

If national central banks purchase dollars and issue internal debt bonds, the internal debt will certainly increase. All these mechanisms have operated in some countries of the region, aiming at only one purpose: the early payment of debt through the use of monetary reserves.

In September 2006 international reserves in Latin America and the Caribbean stood approximately at 295 billion dollars, which accounted for a growth 16% higher than in 2005. The Caribbean registered a growth to this 23% aggregate which was higher than 20%. In 2004 and 2005, these rates were the highest in all sub-regions, mainly due to the progress of Trinidad and Tobago. This expansion was only compared to that accomplished by the Southern Cone, the sub-region with the highest balance in absolute terms. (ECLAC, 2006)

In this context, Brazil and Agentina decided to cancel their debts to the IMF. Argentine authorities had submitted to parliament the ‘Need and Urgency’ decree, with the intention to modify three articles of the Convertibility Act 1, with the purpose of obtaining authorisation to use central bank reserves.

Contrary to the opinion of some sectors on the effects this policy would have on the country’s economy, on the grounds that it could result in a more expensive debt, finance authorities finally signed a resolution allowing the central bank to allocate 9.81 billion dollars from national reserves to the total cancellation of debts owed to the IMF. Thus, total international reserves registered a decrease in the same amount.

Argentina’s payments to the IMF from January 2002 to November 2005, totalled the amount of 8.35 billion dollars. If these payments are added to those effected in December 2005 and to the 9.81 billion dollars paid in 2006, Argentina paid the IMF the sum of approximately 19 billion dollars in approximately four years. In addition, the country has paid just over 6 billion dollars to the IDB and the World Bank. (IMF, 2005)

However, the total public debt remains unchanged. Although a reduction was registered in terms of IMF debt, the amount the Government owes to the Central Bank has increased.

The government has applied a compensation mechanism to balance the amount of cancelled debt (assets and liabilities), through the issue of non-transferable bills.

The process resembles a debt swap between the Economy Ministry and the Central Bank. On acquiring the non-transferable bill of exchange of the Argentine treasury, the Ministry undertook to cancel the total amount owed by the Central Bank to the IMF, within a 10-year term, at a specific interest rate, the Libor rate, minus 1%.

At the same time, the Brazilian government also announced its “deindebtedness” policy towards the IMF, making a payment of 15 billion dollars, based on the monetary reserves of the country’s central bank.

In order to increase its international reserves and allow early payments to international creditors, the Brazilian government has purchased 30 billion dollars in the market, mainly by issuing internal debt bonds. (Rodrigo, L, 2006)

These debt payments are a political strategy that will most likely aggravate the social problems of these nations, since payment of internal debts will require even greater fiscal adjustments through taxes, and the reduction of social budgets.

This is undoubtedly another cause of concern within the regional financial context: the use of national monetary reserves to comply with external debt payment to the detriment of social programmes that are essential for the development of nations.

According to ECLAC, these financial operations have contributed to the decrease in total external debt figures in the region.

It is also worth mentioning the Multilateral Debt Relief Initiative agreed by the IMF in January 2006 and by the World Bank in March of the same year, which would supposedly benefit Bolivia, Guyana, Honduras and Nicaragua. However, the results obtained have already been shown.

In November 2006, the Inter-American Development Bank - the largest multilateral creditor in the region - announced the launching of a debt-cancellation mechanism for the same countries plus Haiti. However, the meeting lacked the participation of civil society members. It was only attended by members of the committee already set up at the IDB 47th Annual Meeting, held on July 17, 2006 in Belo Horizonte.

By the end of 2006, in a letter sent to the president of the Inter-American Development Bank, Luis Alberto Moreno, Latin American civil society organisations called on the institution to carry out a debt audit and grant total debt cancellation for Bolivia, Guyana, Honduras, Nicaragua and Haiti. They also demanded an immediate collective meeting to be held with the Inter-American Development Bank with a view to stating the position of civil society.

It is known that by the end of 2006, Bolivia, Guyana, Honduras, Nicaragua and Haiti must have serviced over 313 million dollars claimed by the Inter-American Development Bank. These figures were higher than the budget available for the implementation of social policies.

Of course, the real concern for the organised civil society was the possibility that this proposal would not consider the total cancellation of debts and that the new initiative would just imply further conditionalities for the five countries involved.

The debt stock as of 2003 is eligible for cancellation but not the current debt. Even after this deal, which will see 716 million dollars cancelled for Honduras, 517 million dollars for Nicaragua, 382 million dollars for Bolivia, 326 million dollars for Haiti and 248 million dollars for Guyana, the five countries will still have a debt amounting to 1.62 billion dollars, according to December 2005 data.

Within this context, it is of utmost importance to make a distinction between the real impact of debt and its secular consequences in the development of the region.

Even though there is certain availability of resources, neo-liberalism prevents their redistribution. ECLAC itself highlights that, while fiscal revenues increase as the result of a more intense economic activity in some countries together with the high prices of some commodities exported by the region, this greater availability of resources is not reflected in higher expenditure or in increased living standards for Latin-American people. And in fact, in the period 1986-2006, the region paid 2.4 trillion dollars by way of debt service. (WEO, 2006)

Gladys Cecilia Hernández Pedraza