Guyana to seek 90% debt write-off
--Minister Bharrat Jagdeo

by Robert Bazil
Guyana Chronicle
July 10, 1999

GUYANA will take advantage of a `goodwill' clause in the Paris Club agreement by the end of the year and seek a 90 per cent debt write-off, Finance Minister, Mr. Bharrat Jagdeo announced yesterday.

Jagdeo told reporters at a press conference that the `goodwill' clause states that once the multilateral institutions have agreed to the Cologne Terms, Guyana can return to the Paris Club to have up to 90 per cent of its debt written off.

"So we are hoping that if all goes well, that by the end of the year, we can go back to the Paris Club to have another 10 per cent of our debt in Net Present Value (NPV) terms written off...that would take it up to 90 per cent," he told reporters at the GTV, Channel 11 studio in Georgetown.

"...this is very important for Guyana, I think it was a big battle and I am quite pleased that we have won...many other creditors have gone to the Paris Club and have not gotten a `goodwill' clause from the Paris members.

This development, Jagdeo said, would give the Government more resources to spend on education, health, water and other areas in the social sector.

He was confident that Guyana must be one of the first countries which should qualify under the Cologne Terms.

The Minister warned, however, that although the leaders of the G-8 countries have agreed to the Cologne Terms, many of the bureaucratic institutions in those governments are seeking to minimise the relief given to Third World countries.

"At the leadership level, these are broad declarations of support, but at the practical level, where you have to work out the eligibility criteria, among other things, there is a lot of resistance," he noted.

Guyana's debt at the moment stands at just about US$1.4B and the country will now be paying about US$25M less every year to the international institutions and to bilateral creditors in terms of debt servicing.

The country will be paying just over US$80M annually in debt servicing beginning next year.

The US$25M reduction (and if the move later this year is pulled off at the Paris Club) will improve Guyana's Balance of Payment position and bring more stability to the economy.

In giving a background to Guyana's debt relief efforts, Minister Jagdeo said that in 1996 Guyana went to the Paris Club to seek debt relief under the Naples Terms, and succeeded in that quest.

He said that what this meant was a 67 per cent reduction in the stock of debt outstanding. This was subsequently followed up by bilateral meetings in 1997 with Canada, Denmark, France, Germany, The Netherlands, Norway, Sweden, Trinidad and Tobago, the United Kingdom and the United States - all Paris Club creditors.

As a result of the negotiations emerging out of the 1996 Agreement (according to the Naples Terms), Guyana's debt reduction went from US$799M to US$270M.

"In effect, we had about a US$529M write-off on our stock of debt," he said.

According to Jagdeo, the new Highly Indebted Poor Countries (HIPC) Initiative came on stream, and many of the multilateral institutions and some bilateral `friends' were saying that Guyana would not be eligible.

But the Government took up the issue because it felt that the criteria that they were applying for eligibility did not really deal with the impact of the debt on revenue. The criteria they were using had to do mainly with the relationship of the stock of debt to exports.

However, Guyana argued successfully (with the support of many other countries) that for the multilaterals to define debt sustainability, they just could not look at the impact of the debt on exports, but on revenue.

He spoke of a lot of lobbying efforts by Guyana, and other countries sympathetic to the cause, for looking at the fiscal impact of the debt. The International Monetary Fund (IMF) and the World Bank introduced a new concept of sustainability, which is that the Net Present Value (NPV) of the debt should be 280 per cent of revenue.

Any country that has met the general criteria would have been eligible, Jagdeo told reporters, adding that other requirements included a good track-record with the multilateral institutions.

Consequently, Guyana became eligible and was the first country in the world to receive debt relief under the new criteria - the fiscal openness criteria.

Reiterating the fact that Guyana qualified for HIPC in December 1997, Jagdeo said that the multilateral institutions were saying that the completion point should be three years. But, the Government successfully argued that if it took three years for the completion point, the debt relief that they were planning to give Guyana would have been reduced by over 50 per cent.

Consequently, the multilateral institutions agreed to a one-year completion point for Guyana, which was December 1998.

The Boards of the IMF and the World Bank took a decision on May 12 and 13 to certify that Guyana has reached the completion point, which made it qualify for debt relief under the HIPC initiative. But, particularly, it cleared the way for the multilateral disbursement of debt relief.

"We had to return to the Paris Club to seek the recent Lyons Terms which were envisaged under the HIPC initiative," the Finance Minister said. He added that Guyana, in its memorandum to the Paris Club, requested more than the Lyons Terms.

Guyana argued that although these institutions were going to deliver the debt relief as originally envisaged under the HIPC initiative, because of the change in the discount and exchange rates, the nominal level of relief would be reduced.

Jagdeo pointed out that while in NPV terms Guyana was going to get the same amount promised under the HIPC, in nominal terms, it would be reduced.

According to the Minister: "We were saying that this reduction in nominal terms, in debt relief, had to be seen in the light of Guyana not even reaching the 280 per cent in NPV terms of the fund, of debt to revenue."

He recalled that at the completion point of HIPC, Guyana was already at 400 per cent although it had been given debt relief under the HIPC initiative, thus its argument for more than the Lyons Terms.

By the time Guyana sent its memorandum to the Paris Club, the G-8 countries met in Cologne and approved a package similar to what Guyana was requesting.

At the Paris Club, the institutions agreed to an 80 per cent reduction in Guyana's debt in NPV terms, which means a reduction in the service of about US$127M over 20 years - about $6M less per annum.

This did not impact much on the stock of debt because Trinidad and Tobago, which had joined the Paris Club some time back, had about 68 per cent of the pre-cut off date stock of debt.

Jagdeo explained that Trinidad and Tobago did not choose the stock reduction option, but gave Guyana the debt service option. And, while Trinidad and Tobago maintained the stock of debt, they reduced the interest rate.

"From Trinidad and Tobago, when the interest rate was six per cent, it has dropped to just about three per cent, which results in a saving per annum of about US$5M to US$6M," he said.

Guyana was paying Trinidad and Tobago about US$11M per annum.

He explained that all the other creditors chose the stock of debt option (to reduce the principal), except Trinidad and Tobago, which will result in a larger impact on the debt servicing and less on the stock of debt.

Additionally, Russia had subsequently joined the Paris Club and Guyana had to deal with their debt for the first time. Previously, Guyana had written to non-Paris Club members asking for write-offs comparable to those offered by the Paris Club. They have not responded in most cases, or wanted to offer less than what the Paris Club had offered.

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