HISTORIC PRESS RELEASE : Trust Fund for Honduras and Nicaragua – New UK Government Proposals [December 1998]

The press release issued by HM Treasury on 10 November 1998.

A new trust fund for Honduras and Nicaragua, with #10 million backing from the UK, was proposed today by Chancellor of the Exchequer, Gordon Brown and International Development Secretary, Clare Short. It is one of three proposals for international
assistance put forward by the UK following the recent natural disaster in those countries.

The proposals, outlined in letters to G7, IMF and World Bank colleagues, are to consider urgently :

• a trust fund to which bilateral and multilateral creditors can contribute  assistance to meet short term debt service obligations, with a UK contribution of #10 million.
• shortening the timetable for completing debt relief programmes for post-catastrophe countries as for post-conflict countries
• a moratorium on official bilateral debts.

The #10m UK contribution is additional money for Nicaragua and Honduras. The Treasury has guaranteed access to the reserve for this extra money.

A copy of the joint letter is attached. Announcing these proposals, Gordon Brown said:

“In addition to emergency relief aid which many countries and agencies are already giving to the victims of Hurricane Mitch, it is essential to consider longer term assistance to help the countries affected back on track towards sustainable development.

“The proposals announced today will do a great deal to support the aid efforts. We shall continue to work closely with other Governments and international financial institutions to deliver practical, effective assistance.”

Clare Short said :

“We are willing to explore the possibility of providing help to Honduras and Nicaragua through some kind of moratorium on official bilateral debts with other bilateral creditors.

“It is essential that the post-catastrophe countries themselves, not other creditors, benefit from any actions taken. Any combination of IFI and bilateral aid will be designed to achieve this vital safeguard.”

Reminding members of the public how they can most effectively support Government efforts, the Chancellor said :

“Individual contributions to help Honduras and Nicaragua can be made free of tax through the Millennium Gift Aid scheme. This scheme, which came into effect earlier this year, enables anyone giving at least #100 to qualifying projects before the end of the year 2000 to reclaim tax on their gift.

“I know that many thousands of people have been moved by the plight of the people of these countries and wish to add their own contribution to that being provided directly by Government. Through Millennium Gift Aid, we shall help them to make their assistance go that much further.”

10 November 1998

M. Michel Camdessus

Managing Director

International Monetary Fund

700 19th Street N W

Washington DC 20431

WASHINGTON

USA

POST-CATASTROPHE COUNTRIES

We are all aware of the terrible devastation that Hurricane Mitch has caused to the social and economic infrastructure in Honduras and Nicaragua – two countries that were amongst the poorest in the world even before this disaster.

Many countries have already made emergency contributions to the international aid effort, and these donations must continue.  It is essential that emergency aid is delivered immediately to help the homeless and injured and to minimise the chances of further damage being caused through disease.

However, it is not too early to begin to think about how to put these countries back on a sustainable track towards development.  The catastrophe caused by Hurricane Mitch has left both Honduras and Nicaragua in need of substantial sums of money.  Given the drastic reduction in their exports as a result of the hurricane, this money is necessary to finance essential imports as well as to allow the necessary rebuilding of the countries’ infrastructure.  We must now consider how this money is best delivered.

For the reasons above, in addition to providing rapid disbursing assistance under existing mechanisms for disaster relief, we ask you to look urgently at possible mechanisms that could mitigate the debt service payments that these countries are due to make to International Financial Institutions over the coming months.  We would support the temporary suspension of debt service payments to the International Financial Institutions.

We suggest one way forward is to set up a Trust Fund for Honduras and Nicaragua into which bilateral and multilateral creditors could contribute to help meet the debt service obligations that these countries have to these Institutions in the near future.  The UK stands ready to provide money for any such fund alongside its continuing emergency aid donations.

In the longer term, it is also important to ensure that these post catastrophe countries receive the debt relief that they so desperately need.  We therefore urge you to look at how we might ensure that the HIPC initiative is used as effectively as possible as a means for providing debt relief for these post catastrophe countries, as you have constructively begun to do so for post conflict countries.  It is important that debt relief is not stalled for these countries because of Hurricane Mitch and that creditors are ready to provide the full debt relief necessary at the decision or completion points to ensure that their debt burdens are reduced to sustainable levels.  In particular we would press for consideration of shortening the timetable to permit an earlier completion point.

The UK is also willing to explore with other bilateral creditors the possibility of providing help to Honduras and Nicaragua through some kind of moratorium on official bilateral debts.  Any combination of IFI and bilateral aid will of course have to be designed so that the beneficiaries of any actions are the post catastrophe countries themselves, and not other creditors.

We have written in similar terms to James Wolfensohn and Enrique Iglesias, and am passing a copy of this letter to G7 and EU Finance Ministers.

GORDON BROWN

CLARE SHORT