News Releases

Dec 14, 1998

International Community Pledges $6.3 billion for Reconstruction in Central America

Countries devastated by Hurricane Mitch will receive funds for emergency and humanitarian relief, immediate rehabilitation activities, long-term reconstruction, transformation efforts and debt relief.

Donors of the international community attending a two-day conference in Washington, D.C. on Friday evening pledged $6.3 billion to help Central American countries devastated by Hurricane Mitch. This figure includes funds already approved for emergency and humanitarian relief, immediate rehabilitation activities, long-term reconstruction and transformation efforts and debt relief over the next several years. A high proportion of this amount will be allocated to the two most affected countries. These contributions constitute a strong first step towards meeting the daunting reconstruction and transformation task, which will be reviewed again at the next Consultative Group meeting in Stockholm next May.

High-level delegates from over 50 donor nations and multilateral agencies took part in the first meeting of the Consultative Group for the Reconstruction and Transformation of Central America, which was hosted by the Inter-American Development Bank.

IDB President Enrique V. Iglesias said the meeting represented the best example of international solidarity to help the people of Central America rebuild their lives within a framework of democratic institutions, social justice, equitable growth and environmental sustainability.

The international community's grants, soft loans and debt relief will bolster on-going emergency relief efforts and will help finance plans to rebuild damaged infrastructure and productive facilities in Honduras, Nicaragua, Guatemala and El Salvador, which suffered massive human and economic losses due to the floods and landslides triggered by the hurricane in October.

The Presidents of Central America addressed the meeting and stressed that the tragedy of Hurricane Mitch was a unique opportunity to rebuild not the same, but a better Central America and made the following points:

-- Central American countries have suffered from decades of civil war and social and economic inequalities and must not lose the gains made prior to Hurricane Mitch in bringing peace, democracy and more equitable growth to their people.

-- There are unique circumstances to lay solid foundations for sustainable development and social equity in their respective countries and to pursue a deeper and more dynamic integration in Central America.

The Presidents recognized the quick and generous contributions of governments, international institutions, non-governmental organizations and individuals.

They identified several key areas in which their countries need the support of the international community in the future:

(i) Continuation of emergency relief support
(ii) Fresh resources to help rebuild and transform their societies
(iii) Alleviation of the heavy external debt obligations, particularly in Honduras and Nicaragua
(iv) Expansion of trade opportunities with greater access to new markets and investments
(v) Support for dealing with migratory flows.

The United Nations' preliminary assessments of damage to physical and social infrastructure and to the productive sectors in Honduras, Nicaragua, El Salvador, Guatemala and Costa Rica amounted to about US$5 to 6 billion. These assessments do not include the actual costs of reconstruction which will be determined as the specific reconstruction plans and projects are prepared and are expected to be significantly higher.

Hurricane Mitch had an adverse impact on overall economic activity, employment, and on living standards. The IMF and the World Bank provided a preliminary assessment of the impact of Hurricane Mitch on the balance of payments and external financing gaps. The total external financing gaps for Honduras, Nicaragua, Guatemala and El Salvador are projected to amount to about $600 million in 1999 and $450 million in 2000, as a result of a sharp fall in export earnings from crop losses and an increase in imports for both emergency supplies and reconstruction materials. These gaps are expected to be closed largely with grants, concessional assistance and additional debt relief.

The members of the international community commended the Governments and their people for their determination and courage in coping with the suffering and colossal damage wrought by Hurricane Mitch.

The international community was very supportive of the Governments' commitments to use reconstruction programs as an opportunity to further reinforce democracy, judicial reform, protection of individual rights, strengthening of economic reforms and protection of the environment.

They pointed out that damage was exacerbated by large-scale deforestation, cultivation of marginal lands and lack of adequate watershed management. The hardest hit were the poor living in high-risk areas, who are more prone to migration. Donors expressed hope that at the end of the reconstruction process, there would be greater equity and less environmental vulnerability.

Donors also applauded the Governments' intentions to strengthen their effort with regard to good governance including participation of the civil society, NGOs and the private sector in the planning and implementation of reconstruction programs. They believe that national reconstruction plans would benefit from more decentralization and management by local communities, and urged that high priority be given to transparency and accountability for all funds, both external aid and domestic resources.

The Governments' priority task now is to draw up comprehensive national reconstruction and transformation plans with supporting sector programs which reflect the special circumstances of each country. The responsibility of these plans rests with the Governments, however donors are ready to provide maximum support to help design and implement those plans. Donors indicated the need to improve the coordination of their aid and to assure the highest level of transparency in the use of resources. The sector programs representing the country's development strategy and priorities are the best vehicle for improving coordination of donor assistance.

Important progress was announced at the meeting concerning debt relief measures. A consensus was reached among creditor countries, during a Paris Club meeting on December 9th, to an immediate moratorium on payments for Honduras and Nicaragua for three years and two years. The Central American Emergency Trust Fund established in the World Bank to help Honduras, Nicaragua, El Salvador and Guatemala meet their debt service to multilateral institutions has received to date contributions and pledges amounting to $100 million and further contributions are expected. Lastly, it was announced that there would be an assessment of the possibility of making Honduras eligible for the Heavily Indebted Poor Countries (HIPC) and to ensure Nicaragua reached the HIPC decision point as quickly as possible, which would result in significant levels of debt cancellation. IDB expressed its readiness to contribute its share to this debt reduction effort. In addition, the intra-regional debt issue also needs to be addressed.

Central America faces the monumental task of rebuilding its communities, putting its land back into production and restarting the development process. This meeting was a successful first step in the process with the international community standing solidly behind these efforts. There will be a follow-up meeting to review progress in Paris during the IDB Annual Governors Meeting. The next Consultative Group Meeting will take place in Stockholm in May 25-28, 1999 co-hosted by the Swedish Government and the IDB, at which time Central American governments are expected to present their country-specific national reconstruction and transformation plans which will enable donors to commit their funds against these plans in a coordinated manner.

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