Oxfam and the Jubilee 2000 charity coalition have beenpressing Gordon Brown to call a meeting of international creditors of Nicaragua and Honduras - devastated by Hurricane Mitch - with a view to cancelling their debts.
Charities believe that this is the only way Nicaragua and Honduras will be able to recover from the destruction and begin to rebuild roads, schools and hospitals.
Honduras and Nicaragua are two of the most impoverished and debt-ridden countries in the world. Both are paying high per capita debt repayments to the developed nations, totalling pounds 1.3m a day.
The Chancellor called on the international community yesterday to allow a moratorium on repayments of loans for both countries. Speaking on BBC television's On the Record, Mr Brown said: "I believe a new facility for countries that have faced a huge breakdown as a result of natural disasters must be created." He added: "It is something to which Britain and other countries will want to contribute."
Mr Brown's proposals fall short of writing off debts, but would extend the debt relief that applies to heavily indebted countries (HIPC) whose problems are compounded by wars to those hit by natural disasters.
Kevin Watkins, senior Oxfam policy adviser, said: "If creditors are put before the lives of these people that is morally indefensible." Even before the hurricane, 40 per cent of Nicaragua's people lived below the poverty line.
Oxfam says the International Monetary Fund and World Bank initiative to help HIPCs reschedule their debts is not effective. "The initiative HIPC is dead in the water," said Mr Watkins. "Something needs to be done quickly and what better place to start than with these two countries?"
Ann Pettifor, director of Jubilee 2000, which represents 70 charities, said: "Honduras and Nicaragua are desperately in need of assistance. But while the West gives with one hand, we take away in debt repayments with the other."
Honduras owes $4.5bn (pounds 2.7bn) to foreign creditors. It costs the country $210m to service that debt each year, consuming about a third of government revenue. In Nicaragua, servicing the $6.1bn debt costs about half of the budget.
Little of this money is owed to Britain, only about pounds 3.5m. "Technically, Britain is a small player in the debts of these countries," Mr Watkins said. "However, Britain is a very big player on the question of Third World debt and very influential."
During the 1970s most commercial bank debts were taken over by multilateral agencies such as the World Bank, which are funded primarily by the developed countries.
Nicaragua owes a quarter of its debt to multilateral agencies. Another quarter is to Paris Club members, a coalition of developed countries.
Mr Brown's move completed an embarrassing U-turn by the Government over remarks by Clare Short, Secretary of State for International Development, who said on Friday that debt write-offs were "irrelevant" to the problems facing Nicaragua and Honduras because the priority was emergency relief.
Ministers denied that Ms Short had been overruled, but Mr Brown's intervention was seen as a rebuke to her.Reuse content