Sections:
UK Support helps Nicaragua clear much of it's commercial debt
6 December 2007
A UK contribution of US$3.5 million has helped the Government of Nicaragua reach an agreement to buy back nearly all of its commercial debt, freeing up much needed resources to spend on reducing poverty.
The buy-back deal allows Nicaragua to clear over US$1.3 billion of its
commercial debt at a significant discount. The buy-back operation is supported
by the World Bank’s IDA (International Development Association)
Debt Reduction
Facility (DRF).
The UK’s contribution to the World Bank’s Facility has, to date, helped poor countries to cancel over US$8 billion of debts at a deep discount – typically around 90 per cent. By eliminating outstanding debts in this way, the Facility also helps to reduce the possibility of future litigation against poor countries. The UK is working to support the Debt Reduction Facility and improve its effectiveness still further - including by making it available at the earliest possible opportunity - as part of a package of measures to prevent vulture fund activity.
The Government of Nicaragua has successfully negotiated a binding deal that will cancel just over US$1.3bn of commercial debt owed to 20 creditors. The bulk of the buy-back operation will be completed in December, with any necessary follow-up payments made in January.
The Debt Reduction Facility provides grants to
Heavily Indebted Poor
Countries, known as HIPCs, to buy back - at a deep discount - the debts owed to
external, commercial creditors. It also finances the legal and financial advice
needed to implement such buybacks. Since its inception, the DRF has supported 23
earlier completed buyback operations, extinguishing about US$8 billion of
external commercial debt. By reducing sovereign debt burdens, the DRF
facilitates the improvement of debt relief burden sharing by creditors under the
HIPC Initiative and helps countries normalise their external financial
relations.
Nicaragua completed the HIPC Initiative in January 2004 and had most of its
bilateral and multilateral debts cancelled. The UK provided 100% debt
cancellation. Under the
Multilateral Debt Relief Initiative, Nicaragua also
received 100% cancellation of debts owed to the World Bank (International
Development Association), the International Monetary Fund and the Inter-American
Development Bank. Nicaragua is spending the debt service savings on poverty
reducing expenditures in the housing and water sectors and in the provision of
medical supplies.