Storm-Ravaged Nations Say They Can’t Repay Loans

SAN SALVADOR —  With a sum of $400 million, Honduras could get a start on rebuilding the 88 bridges that tropical storm Mitch destroyed or damaged on its rampage through Central America. Or it could construct housing for some of its 1.4 million citizens who lost their homes.

Or, Honduras could make the regular annual payment on its $4.1 billion foreign debt.

During two days of meetings starting today in Washington, top officials from Honduras and neighboring Nicaragua--the two countries most damaged by a storm that left more than 9,000 people dead across Central America--will try to persuade their creditors that the last option is no option at all.

In this crisis, they say, they simply can no longer dedicate one-third of their national budgets to paying interest on the massive debts that have weighed on their fragile economies for more than a decade.

This is the pinstriped suit side of disaster relief. Less dramatic than teams of doctors treating an outbreak of cholera or a rescue worker and his German shepherd searching for bodies in a mudslide, the talks are nevertheless the key to Central America’s recovery from its worst natural disaster in two centuries.

These impoverished countries must persuade their creditors to come up with the money they need to rebuild.

“We are going to be fighting for debt forgiveness, and besides forgiveness, we need fresh resources,” said Marcos Carias, coordinator of national debt at the Honduran Finance Ministry.

However, major creditors such as the United States must also consider how their taxpayers will react to writing off debt and, at the same time, extending more credit to the same struggling borrowers.

In the longer term, international experts say, these battered Central American countries must have open access to markets for their exports.

Debtors expect to have an indication of how their proposals fare by the end of the meetings, when creditors are scheduled to offer pledges of continued support. Central American officials said they do not expect firm amounts to be promised so quickly; they are hoping for a more general commitment.

A White House source disclosed Wednesday that the Clinton administration is planning further aid, including $120 million to rebuild infrastructure, and also seeks to forgive more than $150 million in debt that Honduras and Nicaragua owe the U.S. government.

In addition, the U.S. is working with international lending agencies to fund nearly $1 billion for the storm-damaged region.

“Essentially, we’re trying to make sure that Nicaragua and Honduras don’t have debt payments in the next two years,” the official said.

“The most important point is that the flow of resources to Nicaragua keeps on coming,” said David Robleto, Nicaragua’s minister of foreign cooperation. To that end, officials in both countries are counting and recounting their losses--and the costs of reconstruction--in order to present a compelling case.

In a show of solidarity, all Central American countries will be sending representatives to the meetings. Still, clearly the burden of proof will fall most heavily on Honduras and Nicaragua, which even before Mitch were the region’s poorest countries.

“The worst damage was in Honduras,” said Ricardo Zapata, who heads an international team responsible for assessing the damage in Central America for the United Nations and other organizations. He said Honduras’ economic losses probably reached 30% of its gross national product, or $1.2 billion.

While the amount of damage in Nicaragua was considerably less, the replacement cost will be far higher than the value of what was destroyed, he said. “It is as if your 10-year-old car were destroyed: You would replace it with a new car worth far more,” he explained. “In Nicaragua, highways full of potholes were destroyed, but they are not going to build roads full of potholes.”

Nicaragua has pegged the cost of reconstruction at $1.5 billion, about 70% of its gross national product and five times the annual payment on its $6.3-billion foreign debt.

Just rebuilding the 41,420 homes destroyed or damaged will cost $200 million, Nicaraguan officials estimate. An additional $83 million is needed for controlling epidemics and replacing damaged health centers. The sum of those two expenses--without considering the bridges and roads washed away or crops destroyed--is nearly equal to the country’s annual debt payment.

“We do not have the resources,” Robleto said.

That argument echoes the ultimatums that Mexico and Brazil issued to international banks 15 years ago: Renegotiate or face default. In fact, the debt problems Central American countries face stem from that era, when international institutions and the governments of industrial countries were readily lending for development.

In the 11 years that ended in 1990, Nicaragua’s foreign debt rose eightfold, to $12.5 billion. Since then, the government has struggled to keep up the interest payments while trying to reduce the principal with talks on debt forgiveness.

Honduras was not much better off. “Even before the hurricane, we were a country with problems” paying foreign debt, Carias said.

When Mitch struck at the end of October, both Honduras and Nicaragua were renegotiating their debt payment schedules and overall economic readjustment programs with the International Monetary Fund.

Nicaragua was eligible for an IMF-World Bank program for highly indebted countries that could wipe out almost half of its debt. Part of the Robleto team’s strategy is to encourage the IMF and the Paris Club--representing the major industrial country lenders--to speed up implementation of the program.

The goal is to get debt payments below 20% of Nicaragua’s exports, Robleto said. Right now it is difficult to figure out how much that will be because the country is not sure how much of its exports will be lost.

For example, the coffee harvest--a major source of export earnings--is starting this month. Mitch destroyed about 20% of the crop, and Nicaraguans are not sure how much of the remainder they will be able to get to market.

Similarly, Honduras lost its entire banana crop and does not expect to export another banana for two years, a significant blow to exports. Mitch also wiped out its melons and shrimp farms.

“The destruction in Honduras was of such a magnitude that it is difficult to fully assess,” Zapata said. Nevertheless, international and local experts are struggling to present enough information so that creditors and debtors can jointly work out a recovery plan.

Unlike the main characters in the debt crisis of the early 1980s, these tiny countries do not have the power to bring down the international banking system. In addition, 95% of their loans are from other governments and development banks--not commercial banks--so they will probably face a more sympathetic audience of creditors.

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Times staff writer Jonathan Peterson in Washington contributed to this report.