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ISSN 1089-1560	Volume 3, Number 44	December 3, 1998

Copyright 1998, Latin America Data Base (LADB) Latin American and Iberian Institute, University of New Mexico http://ladb.unm.edu
Director: Rebecca Reynolds Bannister
Editor: Robert Sandels
Staff Writers:
Patricia Hynds, Carlos Navarro

In This Issue: REGION: DEBT CANCELLATION & STRUCTURAL ADJUSTMENT ARE UNDER DEBATE IN COUNTRIES HIT BY STORM * Camdessus says Honduras must strengthen austerity measures * Central Bank says Nicaragua can manage only fraction of debt * EU committee refuses to invest in debt-reduction fund * El Salvador will not ask for debt cancellation HONDURAS: TRANSPARENCY BECOMES MAJOR CONCERN IN AFTERMATH OF HURRICANE MITCH & CORRUPTION-INDEX REPORT * Red Cross accused of holding back supplies * President Carlos Flores given emergency powers NICARAGUA: GOVERNMENT SEEKS COOPERATION OF FORMER PRESIDENTS IN PLANNING RECONSTRUCTION * Former president Chamorro declines to participate ____________________________________________________________ ********************* REGION ********************* REGION: DEBT CANCELLATION & STRUCTURAL ADJUSTMENT ARE UNDER DEBATE IN COUNTRIES HIT BY STORM International creditors have been slow to commit to massive debt cancellation for the countries hardest hit by Hurricane Mitch. Storm damage has all but eliminated export income for Honduras and Nicaragua for at least the next year, making debt service impossible (see EcoCentral, 11/05/98, 11/12/98). Closely related to the debt are the structural-adjustment policies of the International Monetary Fund (IMF) and World Bank, which these countries must maintain to remain eligible for new loans. Soon after the storm struck Honduras, the Catholic Church and other organizations belonging to the Foro Social de la Deuda Externa de Honduras (FOSDEH) said the debt payments--equaling 40% of the national budget--were no longer sustainable in light of the cost of reconstruction. The Foro called for debt cancellation in all of Central America, but especially in the countries most affected by the storm. The Colegio de Economistas de Honduras (CEH) argued that the debt was incurred largely to build the country's infrastructure that is now destroyed and said the debt "has no legitimacy before the world community." Finance Minister Gabriela Nunez asked the IMF and World Bank for "expeditious preferential treatment" in alleviating the multilateral-debt burden, which constitutes 60% of Honduras' foreign obligation. Several creditor countries have announced they would cancel or restructure Honduras' bilateral debts (see EcoCentral, 11/19/98), and the Paris Club will meet in December to consider across-the-board reductions. But the multilateral lenders have yet to commit to a concrete debt-alleviation policy. On a tour through Central America, International Monetary Fund (IMF) director Michel Camdessus startled Honduran officials Nov. 19 when he advised them to stop worrying about the debt and worry instead about how to reconstruct the devastated country. He told reporters in Tegucigalpa that Honduras should get its priorities straight. "If the debt were canceled and nothing else were done, the country would surely die," said Camdessus. "It seems to me there are more important things to do such as seeing what resources are on hand." But Camdessus quickly changed course the following day, saying he would recommend cancellation of 80% of Honduras' US$4.3 billion foreign debt. While groups in both Honduras and Nicaragua have been pressing for total debt cancellation, Camdessus said a 50% cancellation is the norm in such situations but he would work to get the 80% reduction at the Inter-American Development Bank (IDB) meeting in Washington Dec. 10-11. "I don't want to promise anything," he said. "I'm just saying that we will intercede and that the IMF will have to recommend or come up with something." Camdessus says Honduras must strengthen austerity measures While offering to work for debt reduction, Camdessus warned Honduras it will have to adopt even more rigorous structural-adjustment policies to attract the foreign investment it needs. The pressure for greater adherence to IMF austerity was challenged by the press. In response to reporters' questions about the connection between structural adjustment and poverty--which affects 80% of Hondurans--Camdessus said the IMF was not responsible for poverty in Honduras and called any suggestion that it was "frivolous and superficial." Honduran campesino leader Marvin Ponce told the news agency Notimex that new economic adjustments would mean more taxes and more poverty. He linked the increase in poverty since 1990 to the adoption of IMF policies that required drastic reductions in spending on social programs. Central Bank says Nicaragua can manage only fraction of debt A Central Bank official said Nicaragua can make payments on only US$1.8 billion of its immense foreign debt. Basing the estimate on projected export figures, Jose Marquez, manager of the bank's international section, said that, because of storm damage, export earning would not permit debt service on the entire US$6.5 billion debt. He called for creditors to forgive 80% of the total, leaving approximately US$1.3 billion. Currently, debt service costs Nicaragua 34% of the budget and the debt is 641 times export earnings, more than three times the threshold where debt forgiveness should be considered. The Central Bank's policy is to secure new soft loans such as the US$187 million in emergency funds promised by the IMF and other multilateral lenders. To remain eligible for these new loans, President Arnoldo Aleman's administration has announced its intention to stick with structural-adjustment policies. Central Bank president Noel Ramirez said structural adjustment will continue, with some "marginal modifications," to have access to new soft loans. "Nicaraguan access to soft loans is more important than pardoning the foreign debt, and we will be working to get more [loans]," said Ramirez. By maintaining the structural-adjustment policies for the next two years, Nicaragua could become eligible for an 80% reduction in its multilateral debt under the World Bank's Initiative for Highly Indebted Poor Countries (see EcoCentral, 11/05/98). Of the US$6.5 billion foreign debt, only about US$1.8 billion is with multilateral lenders. The rest is bilateral and commercial-bank debt. During a visit to Nicaragua, Camdessus said he was encouraged by Aleman's decision to stick with structural adjustment, "a program that is essential to preparing a better future for the country." But the Frente Sandinista de Liberacion Nacional (FSLN) opposes any such policy and wants the entire foreign debt canceled and all administration economic policies revised. Orlando Nunez, an FSLN economic advisor, said the economy needs to change "from an oligarchic, urban market economy to an agricultural economy, especially for the impoverished small holders." Several business and professional organizations have called for a sharp departure from IMF free-trade policies. Among other things, they want temporary customs duties on imported industrial and agricultural goods to allow these sectors to recover from storm damage. EU committee refuses to invest in debt-reduction fund In Brussels, the European Union's (EU) Monetary Committee refused to promise any specific amount of money for a newly created international fund for paying down the foreign debts in Central America. The fund, created Nov. 23 by finance ministers from EU member countries, was to be capitalized at US$220 million. The proposal for the fund came from French Finance Minister Dominique Strauss Khan with support from French President Jacques Chirac. It raised objections within the EU as Spanish authorities criticized the French for "seeking a leading role" in the debt question. They also said Chirac's cancellation of US$92 million owed by Honduras and Nicaragua (see EcoCentral, 11/19/98) was a "publicity stunt" since he only offered to defer payments. While the monetary committee said the hurricane damage required assistance from the international community, it made no concrete proposal. The only resolution concerning debt reduction was a request from the committee that the Paris Club grant Central American nations a three-year moratorium on debt payments. The committee also asked private bankers to consider some debt reduction and asked the IMF and World Bank to evaluate the capacity of Honduras and Nicaragua to sustain their multilateral debts. The committee appeared to disregard the advise of Manuel Marin, vice president of the European Commission, who said that, "in situations of natural disasters...that affect poor countries like those in Central America, the IMF and the World Bank should reexamine the sacrosanct principle that debts may be rescheduled but not pardoned." El Salvador will not ask for debt cancellation In El Salvador, Treasury Minster Enrique Hinds announced Nov. 20 that his government would not seek cancellation of its US$639 million bilateral foreign debt. El Salvador's total foreign debt is US$2.827 billion. While President Armando Calderon Sol supports his neighbors' request for debt relief, his administration has not asked for it. The IMF says the Salvadoran government has met its structural-adjustment goals. "Cancellation is for other countries that are poorer and have more debt," Camdessus said during the final stop in his Central American tour. He praised the administration for reducing inflation and the fiscal deficit and said the country was on the "correct path." [Sources: Inter Press Service, 11/18/98, 11/20/98; El Diario de Hoy (El Salvador), 11/22/98; Notimex, 11/19/98, 11/20/98, 11/22/98, 11/23/98, 11/24/98; La Prensa (Nicaragua), 11/25/98] ********************* HONDURAS ********************* HONDURAS: TRANSPARENCY BECOMES MAJOR CONCERN IN AFTERMATH OF HURRICANE MITCH & CORRUPTION-INDEX REPORT In the aftermath of Hurricane Mitch, the Honduran government is taking extraordinary steps to prevent misuse of international assistance. At the same time, President Carlos Flores has come under fire for assuming special powers to direct reconstruction efforts. By late November, Honduras had received about US$72 million in relief supplies and US$5.5 million in cash donations. From the start of the international-relief drive, Flores has tried to assure donor countries that the aid would be handled with transparency and would go to the needy without pilfering or undue delay. Among other steps, Flores has tried to remove government participation in the distribution of donated supplies by channeling them through the churches and nongovernmental organizations. Transparency is of special significance in Honduras because of its reputation as one of the world's most corrupt countries. Transparency International's (TI) latest annual report on corruption ranked Honduras second among the most corrupt countries in Latin America and third among the most corrupt in the world (see EcoCentral, 10/01/98). Comptroller General Vera Rubi wants to prevent a repetition of the theft that took place after Hurricane Fifi in 1974, when civilian and military officials were accused of stealing relief donations. Attorney General Edmundo Orellana promised to prosecute offenders, and several ministries and government departments are policing aid distribution. To date, the government has reported only one case of official mishandling of relief aid. A member of the military was arrested for stealing donated food in the northern city of San Pedro Sula. Officials have also reported complaints that aid has been slow to reach some areas hit by the storm but have described the problem as logistical. Some international relief agencies are supervising the distribution of their aid. And, according to the comptroller general, foreign auditing firms have been hired to verify the receipt, storage, and distribution of relief supplies. Red Cross accused of holding back supplies In at least one instance, aid has been deliberately held back. The comptroller general said that a Nov. 16 audit of the Honduran Red Cross showed the organization had hoarded humanitarian supplies from international donors and had ignored a government order to send all medicines on hand to a central warehouse for distribution. An inspector said the Honduran Red Cross had begun receiving food, clothing, radios, rescue equipment, and other supplies on Nov. 9 but did not distribute them. "They kept it all to themselves and said they had nothing," said the inspector. President Carlos Flores given emergency powers On Nov. 18, the National Assembly gave the president special emergency powers to manage the crisis. It approved an administration proposal to allow the president direct control of all reconstruction funds and authority to alter the budget to pay for reconstruction. The law also permits the government to contract for rebuilding roads and other infrastructure without competitive bidding and without seeking approval from the Assembly. To give the process transparency, the legislators set up a supervisory body to oversee the awarding of contracts. President Flores' promise to use these powers with transparency did little to end the criticism that the law opens the door to corruption. But Flores also announced he would allow international supervision of international aid. Donor countries will be permitted to send technical personnel to participate directly in reconstruction projects as another effort to foster transparency. Comptroller General Rubi said the Agency for International Development (AID) will carry out its own audits of funds allocated for reconstruction. With centralized control over reconstruction through the emergency law, the Flores administration then negotiated a pact committing all parties to undertake reconstruction with all due transparency. The pact was signed by Oscar Rodriguez, archbishop of Tegucigalpa and president of Transparency-Honduras, TI international director in Honduras Mario Rietti, and representatives from labor, campesino, and professional organizations. Rietti said the purpose of the pact was "to construct an island of integrity" in the public bidding on reconstruction contracts. A copy of the pact was sent to Enrique Iglesias, director of the Inter-American Development Bank (IDB), which will meet Dec. 10-11 in Washington to consider funding for reconstruction projects. Aside from transparency in managing aid, the pact recommends limiting congressional immunity to parliamentary matters instead of permitting its use to evade justice. It also recommends limits on expenditures by political parties and measures to expose official corruption. Meanwhile, sources in France accused the Honduran government of inflating the numbers of storm victims. Nicolas Poincare, correspondent for France Info and France Inter, said figures of dead and missing compiled by local authorities were significantly less than the 14,000 reported by the government. After an investigation, the government suspended Gov. Lucila Esperanza Barahona de Castro of Santa Barbara department in northwestern Honduras while it verifies reports that it said came from her office. Barahona said she made no reports at all and did not know where the erroneous estimates came from. The government subsequently lowered the death count by 1,350. Poincare said UN and EU personal in Honduras reported similar exaggerations. Those officials are warning that continued misinformation on Honduras' needs could undermine confidence in the government and lead to reductions in aid. [Sources: Notimex, 11/21/98, 11/27/98, 11/29/98; Spanish news service EFE, 11/20/98, 11/27/98, 11/30/98; La Prensa (Honduras), Associated Press, 12/01/98] ********************* NICARAGUA ********************* NICARAGUA: GOVERNMENT SEEKS COOPERATION OF FORMER PRESIDENTS IN PLANNING RECONSTRUCTION Reconstruction in storm-damaged Nicaragua took on a familiar political tone as President Arnoldo Aleman sought agreement with former president Daniel Ortega (1985-1990) on a plan of "national reconstruction." Nicaragua is second only to Honduras in damage from Hurricane Mitch. To date, the government has reported 4,000 storm-related deaths and US$1.5 billion in economic losses. Unlike Honduras, where the president has asked for and received increased powers to begin reconstruction, Aleman has sought to share responsibility for reconstruction with Ortega, his principal political foe and head of the opposition Frente Sandinista de Liberacion Nacional (FSLN). Aleman scrapped the Comite Nacional de Emergencia, set up Nov. 3 under Vice President Enrique Bolanos, in favor of a new body, the Comision Nacional de Reconstruction (CNR), which includes Ortega. In mid-November, Aleman and Ortega agreed to work together on reconstruction and to attend the Dec. 10-11 meeting on Central American reconstruction in Washington, sponsored by the Inter-American Development Bank (IDB). The Aleman-Ortega cooperation on reconstruction began with a Sandinista promise to support Aleman's efforts to secure international financial help, but subsequent talks appeared to give the Sandinistas considerable political leverage on future policy decisions. At a Nov. 20 meeting, Aleman offered the FSLN membership on four of five presidential planning committees. The five committees are to develop plans for rehabilitation in social programs, infrastructure, external financial cooperation, agriculture, and funding for reconstruction. In addition, Ortega was included in the CNR, which will propose a comprehensive reconstruction plan for funding at the Washington meeting. The CNR includes representatives from government, the FSLN, the Consejo Superior de la Empresa Privada (COSEP), labor, agricultural, and civic organizations. Despite FSLN participation on key policy committees, Aleman said he plans to stick with the economic-adjustment policies, while the CNR's mission is to rebuild damaged roads and restore public services. The recovery plan includes a program of support for the agricultural sector and a crash program to construct housing. Former president Chamorro declines to participate At their Nov. 20 meeting, Aleman and Ortega agreed to invite former president Violeta de Chamorro (1990-1997) to join them at their next meeting, Nov. 23. Chamorro declined to attend, saying that, although she was aware of the meeting's purpose, she was not officially told what it was about. Chamorro said she preferred to work for reconstruction through her private foundation. In promoting government-FSLN cooperation on the reconstruction plan, Aleman denied any "co-government" element. However, Chamorro expressed a concern that the Aleman-Ortega agreements would result in a political alliance between the two leaders. Aleman and Ortega have met frequently to negotiate critical national issues, prompting some analysts to suggest they have developed power-sharing agreements (see EcoCentral, 05/05/97, 07/10/97). In August, persistent rumors forced the two leaders to deny they were negotiating a division of state powers (see EcoCentral, 08/27/98). Eliseo Nunez, a dissident in the governing Alianza Liberal, said Chamorro was correct in rejecting Aleman's invitation. Nunez said Aleman and Ortega were using reconstruction "to legitimize their future pact and they simply needed the former president...to endorse their negotiations." The cooperation between Aleman and Ortega does not eliminate deep divisions between them regarding government spending priorities. Sandinistas are demanding an immediate reordering of budget allocations, while Aleman insists on postponing that debate until next year when the results of the Washington meeting and the extent of international reconstruction funding become clear. At the end of November, the FSLN called for a protest march against Aleman's economic policies. The march is scheduled for Dec. 3, one week before the Washington meeting. Ortega said the purpose of the march is to force the administration to take immediate action to help storm victims and to revise economic-restructuring polices. Ortega said the administration should end its "insensitivity" in continuing its neoliberal policies in the current disaster. The demands reflect the Sandinistas' fundamental opposition to Aleman's economic policies. Among the FSLN's specific demands are suspending layoffs in the public sector, freezing rates for water, electricity, and other basic services, eliminating taxes on basic goods, and canceling planned changes in the labor code. In addition to the lack of agreement on the economy, there has been no resolution of the struggle between the administration and the FSLN regarding Sandinista demands for constitutional and electoral reforms that would favor the Sandinistas. [Sources: La Prensa (Nicaragua), 11/21/98, 11/23/98; Spanish news service EFE, 11/21/98, 11/24/98; Notimex,11/23/98, 11/24/98, 11/30/98]