Britain seeks better debt relief deal for Latin America's poorest

from The Guardian

Larry Elliott

Britain and other European countries will today mount a final attempt to block a $4.4bn (£2.25bn) debt relief deal for five of the poorest countries in Latin America that that will be financed by raiding a fund designed to promote long-term development in the region.

The UK will argue that the plan being pushed through the Inter-American Development Bank (IADB) by the US and Brazil is a flagrant breach of the principle agreed at the Gleneagles summit in 2005 that debt forgiveness should not come at the expense of other poverty alleviation programmes. Gareth Thomas, the international development minister, said: "We have been very concerned about this deal. We hope even at this late stage that discussions can take place to agree a better financing package for debt relief to these countries."

Along with other European countries, Britain intends to abstain in a vote on the package proposed for Bolivia, Guyana, Haiti, Honduras and Nicaragua, and is warning the IADB the proposal may affect future UK funding of the bank's operations in Latin America.

Last week, the IADB's president, Luis Alberto Moreno, hailed the deal as "a historic opportunity" for the five countries. "The agreement backed by our membership will help these countries free up resources to invest in quality education, health and other social services their citizens need to overcome poverty."

Britain will argue at today's meeting that the approach being taken by the IADB is inconsistent with the stance adopted by the World Bank and the African Development Bank, which have guaranteed that debt relief should be "ring-fenced". The IADB was not formally covered by the agreement made at Gleneagles in 2005, but the UK will say today that Latin American countries should enjoy the same terms as poor countries in Africa.

"We are worried that the IADB won't have as strong a focus on helping the poor in the region as it currently does", said one UK source. "We are currently undergoing a review of our relationship with the IADB. The two things [the debt deal and the review] are not unconnected."

The UK has only 1% of the votes at the IADB and accepts that the US and Brazil - which between them have a 40% stake - are almost certain to force through the deal. Brazil, the largest economy in Latin America, is seeking to ensure that the debt deal - worth $3.4bn now and $1bn off future interest payments - does not divert funds from the bigger developing nations.

"They are robbing long-term development to pay for debt relief", one UK source said. "The UK intends to abstain because it would be daft to vote against debt relief, but it should not come at the expense of long-term development."