The External Debt Problem in Central America: Honduras, Nicaragua, and the Hipc Initiative

Harvard Institute for International Development Working Paper No. 645

37 Pages Posted: 14 Aug 1999

See all articles by Gerardo Esquivel

Gerardo Esquivel

El Colegio de Mexico - Centro de Estudios Economicos

Felipe Larrain

Pontificia Universidad Catolica de Chile

Jeffrey D. Sachs

Columbia University - Columbia Earth Institute; National Bureau of Economic Research (NBER)

Date Written: November 1998

Abstract

This paper reviews the foreign debt burden in Central America with special emphasis on Honduras and Nicaragua, which have a large debt overhang. Several indicators suggest that this foreign debt seriously impedes economic growth in both nations. Honduras and Nicaragua, the poorest countries of Central America, have lagged behind the rest of the region in growth, resulting in an increase in regional income inequality during the 1990s. Analysis suggests that Honduras and Nicaragua require alleviation of their foreign debt as a prerequisite to sustained growth. This paper also evaluates the prospects of these countries to qualify for the new initiative aimed at reducing the debt burden of the highly indebted poor countries (the so-called HIPC Initiative). It concludes that Honduras and Nicaragua have favorable prospects of qualifying for the HIPC Initiative. In general, both countries meet the eligibility criteria. Honduras and Nicaragua face a higher foreign debt burden than three countries that have already qualified for HIPC treatment. The main obstacle, however, is demonstrating successful macroeconomic performance under the supervision of the IMF. The paper ends with a discussion of the strategy that these countries should follow in order to achieve maximum debt relief.

JEL Classification: F34

Suggested Citation

Esquivel, Gerardo and Larrain, Felipe and Sachs, Jeffrey D., The External Debt Problem in Central America: Honduras, Nicaragua, and the Hipc Initiative (November 1998). Harvard Institute for International Development Working Paper No. 645, Available at SSRN: https://ssrn.com/abstract=168173 or http://dx.doi.org/10.2139/ssrn.168173

Gerardo Esquivel (Contact Author)

El Colegio de Mexico - Centro de Estudios Economicos ( email )

Camino al Ajusco 20
Col. Pedregal de Santa Teresa
Mexico DF 10740
Mexico
+52 55 5449-3000 x50031 (Phone)
+52 55 5645-0464 (Fax)

Felipe Larrain

Pontificia Universidad Catolica de Chile ( email )

Av. Vicuna Mackenna 4860
Macul. Correo 17
Santiago
Chile
56 2 354-4027 (Phone)
56 2 553-2377 (Fax)

Jeffrey D. Sachs

Columbia University - Columbia Earth Institute ( email )

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New York, NY 10027
United States
212-854-8704 (Phone)
212-854-8702 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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