Hurricane prompts moves to lift debt burden

Leading Western nations have announced moves to write off or reduce debt repayments owed by the Central American countries devastated by Hurricane Mitch.

In a major policy shift, several Western governments appear to have admitted the futility of forcing impoverished nations to repay massive amounts of debt while at the same time sending aid to the same countries.

The Government last night backed the move, with the Minister of State with responsibility for development co-operation, Ms Liz O'Donnell, suggesting a possible moratorium on debt repayments for Central American countries.

Poor countries pay £5 back in debt repayments for every £1 they receive in aid. The Third World currently owes Western banks more than $2.1 trillion (£1.48 million-million).

More than 11,500 people were killed, some 15,000 are missing and 2.37 million were left homeless by the hurricane, which swept through Honduras, Guatemala, Nicaragua and El Salvador.

France led the way yesterday by scrapping the debt owed to it by the worst-affected countries. Germany and Spain said they were considering following suit and Britain suggested a moratorium on debt.

Ireland, which has seldom been a creditor nation, is owed little or nothing by Third World countries. Earlier this year the Departments of Finance and Foreign Affairs announced a £20 million debt relief package, mainly aimed at African countries.

Ms O'Donnell said the capacity of heavily indebted countries such as Nicaragua and Honduras to meet their debt obligations was now "hopeless".

"This requires an urgent international response, including the possibility of a debt moratorium on immediate debt payments and addressing long-term debt needs."

She was announcing a second allocation of £200,000 from the Department of Foreign Affairs for disaster relief in the region. The money will be channelled through Trocaire and the Agency for Personal Services Overseas (APSO).

The level of Irish aid to the disaster area has been the focus of some controversy. Before the Department announced its second allocation, the Latin American Solidarity Centre pointed out that its first contribution was "little more than the price of an average suburban house in Dublin".

It pointed out that Fyffes, the Irish banana trading group with large interests in Central America, had until yesterday donated more than the Government.

The £400,000 provided by the Government so far is equivalent to the amount the Central American countries repay in debt in about seven hours.

In London the British Chancellor of the Exchequer, Mr Gordon Brown, told reporters that Britain was prepared to pay £10 million into a World Bank trust fund it believes should be set up to aid the Central American countries.

Mr Brown said that Britain had proposed in a letter to the World Bank, the International Monetary Fund (IMF) and the Group of Seven industrialised nations the "suspension of world debt payments so that countries are given the best chance to rebuild" after catastrophes and conflicts. The Spanish Finance Minister, Mr Rodrigo Rato, said his government would approve a £65 million aid package to Central America later this week. Madrid was also considering writing off those states' debt, he added.

The Netherlands announced it was cancelling £0.75 million in interest and debt repayments owed by Honduras. Cuba said it was writing off a £32.5 million debt it was owed by Nicaragua.

Meeting in El Salvador, the leaders of Nicaragua, El Salvador and Honduras yesterday issued a joint plea for more aid and debt relief for their stricken economies.

The US, while giving no indication it would contemplate debt write-offs, announced £6.5 million in additional aid to victims of the disaster. Ms Tipper Gore, the wife of Vice-President Al Gore, said the tragedy was one of "biblical proportions".

In Washington, the World Bank said it was redirecting existing loans to provide £130 million in immediate assistance.