Storm-Battered Nicaragua, Honduras Get Debt Relief

The Central American countries most ravaged by tropical storm Mitch have received extensive debt relief from the world’s richest creditor nations, sources confirmed Thursday.

Paris Club members, including the United States, have agreed to forgive 80% of Nicaragua’s debt, consider a similar reduction for Honduras and postpone for three years all payments on both countries’ loans.

The agreement will free more than $400 million for reconstruction after the disaster in late October that claimed more than 9,000 lives and caused billions of dollars in damage, officials said.

In thanking the industrial nations that make up the Paris Club, Nicaraguan President Arnoldo Aleman pledged late Wednesday: “The resources will be used correctly . . . and within a macroeconomic framework that guarantees that the generous gesture of international solidarity will effectively contribute to the reconstruction and transformation of our beloved fatherland.”

Nicaragua’s $6.3-billion foreign debt will be reduced by 80% under a program for highly indebted, impoverished nations, according to Nicaraguan presidency officials. Honduras plans to begin negotiations in March to reduce its $4.1-billion debt under the same World Bank-International Monetary Fund plan, said Marcos Carias, coordinator of national debt at the Honduran Finance Ministry.

Both nations had been struggling for a decade under debt burdens accumulated in the 1980s when U.S.-backed Contra rebels used Honduras as a staging area for their guerrilla war against the Marxist Sandinista National Liberation Front that ruled Nicaragua.

Each year, debt payments absorbed about one-third of their national budgets. Nicaragua already had received several reductions of a debt that had reached $12 billion when the Sandinistas were voted out of office in 1990.

Even before Mitch struck, Honduras was $80 million behind in payments to international creditors.

When Mitch’s flooding destroyed banana crops and damaged coffee harvests, it became clear that neither Nicaragua nor Honduras could continue to make payments on their international debt.

Further, the countries pleaded last month with creditors in Washington, D.C., that they desperately needed the money--and more--to rebuild the houses, bridges and highways that Mitch destroyed.

“This means that we will have funds to rebuild,” Carias said of the debt-relief program, which will include postponing payment on the $80 million that Honduras is already in arrears, plus payments for the next three years, a total of more than $300 million.

Nicaragua, which will be able to postpone payments totaling $111.7 million during the three years, will redistribute its 1999 debt payment of $40.8 million to the Public Investment Fund, which will be used for reconstruction and social programs.

Times special correspondent Aracely Acosta in Managua, Nicaragua, contributed to this report.