February 2, 2005
Poorest Nations May Get Debt Relief
By MICHAEL M. PHILLIPS
WASHINGTON -- The U.S., Britain and other wealthy nations are inching toward an agreement to write off billions of dollars of debts owed by the world's poorest countries.
With antipoverty groups ratcheting up pressure, top economic officials from the Group of Seven major industrialized nations are expected to try to hammer out the details at a meeting in London this weekend.
"There will be progress" toward an accord on debt relief, predicted one European official.
British Chancellor of the Exchequer Gordon Brown, who holds the rotating chairmanship of the G-7 finance ministers' group, is pressing for a quick resolution that would relieve the worst-off nations of outstanding debts owed to the World Bank and International Monetary Fund. Both institutions provide loans to developing nations, many of which struggle to repay them. Antipoverty activists say the debt cancellation, which would go far beyond previous efforts, is essential if poor countries are to free up resources for education, health, water and other basic needs.
"We're hopeful this can be a place where there is concrete action instead of just the rhetoric you usually see coming out of meetings of the G-7 finance ministers," said Neil Watkins, national coordinator of Jubilee USA Network, a debt-relief advocacy group.
The G-7 governments remain split over how to finance the write-off, and a final accord may have to wait until President Bush and the other G-7 leaders meet in Scotland in July. The G-7 consists of the U.S., Britain, France, Germany, Japan, Italy and Canada.
There appears to be consensus among the G-7 that the IMF could fund a write-off of its loans to the poorest nations -- currently valued at about $9 billion -- by tapping its huge gold reserves. The IMF holds 103.4 million ounces of gold, valued at about $43 billion at market prices. To avoid upending gold markets, the IMF would likely arrange private sales to some of its 184 member nations or perform complex accounting maneuvers to direct the reserve to debt relief. Or it could spend the $4 billion left over from a smaller debt-relief initiative funded through its gold resources in 1999-2000.
The trickier issue is how the World Bank could write off loans to the poorest countries. The World Bank borrows on global markets at very low interest rates and lends to developing nations at slightly higher rates. If it wrote off big loans, the bank's credit rating might suffer and the bank might find itself having to pay more to borrow and having to charge more to lend.
Britain is proposing that rich nations use their own money to repay World Bank loans on behalf of the borrowers. That would keep money flowing back into the World Bank and allow it to maintain new-lending levels.
The Bush administration, facing record budget deficits, wants the World Bank to forgive existing debts and reduce the amount it lends in the future. The U.S., represented by Treasury Secretary John Snow, also wants the bank to increase the amount of aid it provides in the form of grants, instead of loans, so countries don't slip back into unmanageable arrears. The U.S. position troubles debt-relief activists, who fear that it would drain World Bank resources.
"There are other proposals out there," said John Taylor, Treasury's top international official. "This is the most doable one, and the most dramatic."
Write to Michael M. Phillips at firstname.lastname@example.org