One of many factors that have hampered the Honduran government’s ability to stimulate growth and spend more on social programs is a massive load of debt, inherited from generations of improvident former governments. Honduras’s debt hovered between US$3 billion and US$4 billion dollars, well over half of the tiny country’s GDP, for most of the 1990s. At the end of 1999, the total was around US$4.6 billion, not including several hurricane relief loans. Interest and service payments on the debt gobble up at least 30 percent of the annual budget, money that could be used to address many unfilled and critical needs.
Even before Hurricane Mitch struck, the creditor nations of the Paris Club—Canada, Denmark, France, Italy, Japan, Germany, Holland, Spain, Switzerland, and the United States—and the World Bank were considering including Honduras under the Highly Indebted Poor Countries (HIPC) initiative, which aims to forgive large portions of basically unpayable debt owed by poor countries to the World Bank and the IMF. The proposal will likely include 41 countries, of which 33 are in Africa, 4 are in Asia, and 4 are in Latin America (Bolivia, Nicaragua, Guyana, and Honduras).
By 2005, Honduras had arrived at the HIPC “completion point,” and the debt was reduced by US$1.2 billion in 2006. By the end of 2007 the debt was reduced by another billion, dropping to US$1.8 billion. Since then it has crept up to US$2.15 billion as of February 2009.
© Chris Humphrey and Amy E. Robertson from Moon Honduras, 5th Edition