USING IDB DEBT WRITE-OFF AS LEVERAGE WITH GOG

C O N F I D E N T I A L GEORGETOWN 000546 SIPDIS SIPDIS WHA/CAR WHA/EPSC - EMARTINEZ EB/IFD/ODF - KDIZOGLIO TREASURY FOR OFFICE OF DEVELOPMENT POLICY - BLEO TREASURY FOR OFFICE OF INTERNATIONAL AFFAIRS - CGREWE E.O. 12958: DECL: 06/09/2016 TAGS: PGOV EFIN PREL EAID KCRM GY SUBJECT: USING IDB DEBT WRITE-OFF AS LEVERAGE WITH GOG REF: GEORGETOWN 499 CQified By: Ambassador Roland W. Bullen For reasons 1.4 (b) and (d) ¶1. (C) SUMMARY. Post understands that the Inter-American Development Bank (IDB) will consider forgiving $3.5 billion of debt owed by its five poorest members, including Guyana. This presents a unique opportunity to influence the GoG to follow through on long overdue governance improvements. The donor community in Georgetown is convinced that bringing about real improvement in Guyana's democracy requires concerted international pressure. The potential IDB write-off is the last big chance for donors to leverage conditional debt relief into pressure on the GoG. END SUMMARY. -------------- The Case for Governance Reform in Guyana -------------- ¶2. (U) Guyana's economy and society has stagnated, at best, for the better part of a decade. National elections, constitutionally due by August 4, have been delayed at least until September and preparations are bogged down (reftel). Local elections were last held in 1994. Over 2% of the population "votes with their feet" each year by migrating to the U.S., Canada, and elsewhere. Narco-traffickers operate with impunity. Political connections to the ruling PPP party are the most valuable assets to have. Investors are extremely skittish about sinking capital into the country. Despite some exogenous setbacks -- like severe flooding and the loss of EU preferential prices for sugar -- the main culprit holding Guyana back is poor governance. Guyana's percentile rank across all six World Bank Governance Indicators fell by 11 percent between 1998 and 2004. ¶3. (U) There is a way forward. The Caribbean Community (CARICOM) brokered a 1998 agreement between the two main political parties to settle post-election unrest -- the Herdmanston Accord. In exchange for the opposition PNC calling off its protests, the two sides agreed to undertake broad constitutional reform to address race relations, justice, equity and progress. However, no enforcement mechanism was put in place to ensure the Accord's implementation. Eight years later, the commitments remain unfulfilled (for which the PPP and PNC share the blame). While not a panacea, implementing the Accord and other expert-recommended governance reforms would be a big step in the right direction for Guyana. -------------- Debt Forgiveness is the Lever for Change -------------- ¶4. (U) Improving Guyana's democratic system and practices is a key part of Post's Mission Performance Plan. However, the USG has very little leverage with which to induce a recalcitrant GoG to change its spots. The mention of money, though, fixes the GoG's attention. Guyana has been on a roll of late in relieving itself of its external debts. Yet despite all of this debt forgiveness and resulting financial flexibility, there has been little or no corresponding improvement in the GoG's performance. ¶5. (U) Multilateral and bilateral debt relief chronology: -- December 2003: Guyana qualifies for US$334 million in relief upon its Heavily Indebted Poor Country (HIPC) completion point.Q- January 2004: The Paris Club (including U.S.) and Trinidad and Tobago pledge relief of US$156 million. -- June 2004: U.S. writes off 100 percent of bilateral debt with Guyana, US$36 million. -- December 2004: Russia writes off US$16 million. -- June 2005: At the G8 meeting, Guyana secures 100 percent cancellation of its debts owed to the IMF and the International Development Association (IDA) through the Multilateral Debt Relief Initiative (MDRI). -- October 2005: Guyana signs bilateral debt cancellation agreement with Trinidad and Tobago amounting to US$123 million. -- December 2005: OPEC Fund for International Development relieves Guyana of US$5 million. -- January 2006: IMF relieves Guyana of its remaining debt of US$65 million. -- July 2006: World Bank is set to cancel US$218 million owed to the IDA. ¶6. (U) At the end of 2005, Guyana had US$470 million in remaining debt to the IDB, or around 43% of Guyana's total external debt stock -- making the IDB the GoG's single largest creditor. In his January 2006 budget speech, Finance Minister Saisnarine Kowlessar highlighted as a top priority continued lobbying for extension of the Multilateral Debt Relief Initiative (MDRI) to IDB debt. In essence, the potential IDB write-off is the last big chance for donors to leverage conditional debt relief into pressure on the GoG. -------------- Canada and IDB in Guyana are on Board -------------- ¶7. (C) The Canadian High Commission (CHC) is in full agreement that pressure must be brought to bear on Guyana using IDB debt forgiveness as a lever. Ambassador is confident that IDB's resident representative (protect) also favors this approach and will meet with him later in June to discuss the issue further. The CHC has already contacted Ottawa and Washington colleagues to convey much the same message as contained in this telegram. -------------- Comment -------------- ¶8. (C) Ambassador's comment: I urge the Department and other USG agencies to coordinate their strategy on Guyana's debt forgiveness with other IDB members, particularly Canada. Tying debt forgiveness to constitutional and governance reform is a golden opportunity to bring about meaningful change in Guyana. End Comment. Bullen