Source:
Fundación Jubileo
Fri Mar 03 2006
Fundación Jubileo has published the first issue of its Journal. One of the articles included therein closely reviews the debt problem and explains its position regarding the G8 debt cancellation and the attitude the IADB should be taking.
Bolivia met an unexpected record in terms of external debt service payment (installments of principal and interests) in 2005, by allocating nearly 370 million dollars for the fulfillment of payment obligations to lenders – an amount in excess of 100 million dollars if compared to payments made in the last five years.
The country made the highest payment within recent years and gave the largest portion to the CAF
Bolivia met an unexpected record in terms of external debt service payment (installments of principal and interests) in 2005, by allocating nearly 370 million dollars for the fulfillment of payment obligations to lenders – an amount in excess of 100 million dollars if compared to payments made in the last five years.
According to data from the Central Bank of Bolivia, a little less than 265 million dollars of this amount accounted for installments of principal (amortizations) and almost 105 million were paid as interests.
On average, between 2000 and 2004, the country had allocated nearly 270 million dollars for meeting its annual external debt obligations.
Last year, the amount paid was increased while the largest share was allocated in favour of the Andean Development Corporation (CAF), which received 174 million dollars in debt payment from Bolivia - nearly 70 million dollars more than in 2004. This institution grants credits at commercial conditions, with high interest rates and short terms, compared to other lenders.
The remaining amount was paid to other multilateral institutions, mainly the Inter-American Development Bank (IADB), International Monetary Fund (IMF) and World Bank, as well as to some creditor countries.
Nearly 5 billion dollars in external debt
Until December 2005, Bolivia owed more than 4.93 billion dollars. This year, lenders disbursed new credits in the amount of 440 million dollars, while the debt cancellation amounted to 53 million.
The same as in previous administrations, the CAF was the financial institution that granted more disbursements to Bolivia in 2005, amounting to 155 million dollars; that is to say, more than one-third of all credits granted throughout the year.
Since the CAF grants loans with high interest rates and short terms, the amounts to be paid to this institution shall rise significantly within the next 10 years. According to the announcement made by its president, Enrique García, the institution is willing to disburse 400 million dollars a year, which could be further complicating the country’s situation of indebtedness.
Insufficient cancellation
In view of the situation of high indebtedness faced by Bolivia and other poor countries, the world’s eight most powerful nations (G8) announced, at their July 2005 summit, a debt cancellation initiative in favour of 18 highly indebted countries to the World Bank, the IMF, and the African Development Bank.
The debt relief granted by the IMF was applied in January of this year; the World Bank cancellation will enter into force as of July 2006.
In the case of Bolivia, the debt reduction granted by these two institutions would approximately reach 1.7 billion dollars, accounting for 34% of the total debt existing at the end of 2005.
With regards to debt service payments (interests plus amortizations), Bolivia would stop paying, between 2006 and 2015, a little more than an average annual amount of 60 million dollars.
The IADB should join the debt cancellation
These figures show that in spite of the above debt reductions, the State will not be considerably relieved when it comes to scheduling the payment of its external debt obligations.
This is due to the fact that most part of credits to be cancelled are soft loans, with very favourable conditions, while the less soft loans granted by the IADB and the commercial loans of the CAF are not included in this reduction programme.
According to Fundación Jubileo, it is essential for the IADB to join the G8 initiative. Besides, the act of including it implies a moral obligation for the group of powerful countries, since the commitment deals with a “100 per cent cancellation” for all benefited countries in order to make progress towards the fulfillment of the Millennium Development Goals aimed at fighting poverty.
The outstanding debt owed to the IADB at the end of 2005 amounted to more than 1.6 billion dollars, which accounts for one-third (33%) of the country’s total external debt. If the total cancellation of this debt was achieved - besides the write-off by the IMF and World Bank - the relief would amount to more than 3.3 billion dollars, accounting for nearly 70% of the total external debt.
In case the IADB debt cancellation was implemented, Bolivia would be saving more than 100 million dollars a year by way of debt service to this institution.
Spain also announced a debt cancellation in the amount of 120 million dollars in favour of Bolivia. If the debt owed to the IADB was added to the total amount cancelled, the outstanding debtor balance would be of approximately 1.5 billion dollars. More than half of such amount is owed to the CAF.
The CAF case
Although a total cancellation from this regional bank would be hard to achieve, the CAF should in some way participate in the efforts aimed at reducing the external debt burden, just as it is taking part in the HIPC initiative or, at least, by granting credits subject to more beneficial conditions for the country.
The new government should be very cautious when taking new loans from the CAF, since these may be causing a new problem of over-indebtedness in the future, on account of the extremely unfavourable conditions of its credits.
Relief aimed at poverty reduction
Bolivia is far from achieving, until 2015, the international commitments on poverty reduction set forth by the Millennium Goals. On the contrary, the number of people living in these conditions has increased.
The new government should allocate resources freed up through debt cancellation to the fight against poverty, beyond some conditions imposed by multilateral institutions.
“The debt did not favour indigenous people”
“Indigenous peoples are not responsible for such level of indebtedness that brought no results whatsoever to indigenous people, although this does not imply that we should fail to acknowledge such external debt”, said President Evo Morales, in his inauguration speech on January 22.
Morales requested the international community to join the debt cancellation initiatives, as a token of their support to change processes and thanked the countries and international institutions that had committed their aid.
“It is also important for the international community to address this issue in a responsible and serious way; and with all due respect we call for the cancellation of this external debt that has caused so much damage and dependence to our country”.
The President said he aimed at strengthening a national economy with sovereignty, mainly focused on natural resources so that Bolivia could have productive partners rather than owners of its wealth.
Morales committed himself to promote domestic production as a way out of poverty, which will make it necessary to seek access to markets through international agreements that would offer fairer trade benefits and conditions.
See the complete Journal, February, 2006 (only spanish version - pdf format)
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