WSJ.com - G-7 Backs Debt Forgiveness But Disagrees Over Method
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G-7 Backs Debt Forgiveness
But Disagrees Over Method
Poorest Nations Could Get
100% of Loans Written Off;
U.K., U.S. Differ on Plans
By MICHAEL M. PHILLIPS
Staff Reporter of THE WALL STREET JOURNAL
February 6, 2005 1:45 p.m.
LONDON -- The world's richest nations signaled a willingness to forgive billions of dollars in developing-country debt, but left unresolved vexing questions about how to pay for their good intentions.
With Nelson Mandela on hand to provide a moral impetus, top economic officials from the Group of Seven major industrialized nations for the first time jointly promised as much as 100% cancellation of debts that 27 very poor countries owe the World Bank, International Monetary Fund and other international lenders.
"It's certainly progress in the sense that G-7 countries are lining up to point in the same direction. Have we come to agreement on what is the best way to do it? Obviously not," said one senior G-7 official involved in the talks.
WORD FOR WORD
Read the full text1 of the statement released by the G-7 finance ministers and central bankers.
The failure to lay out a clear path toward debt relief reflects a continuing split among the G-7. Britain, in particular, is pressing for G-7 member states to cover the cost of paying off developing nations' debts to the World Bank, which are valued at about $20 billion. Britain is already paying 10% of interest payments for Tanzania and Mozambique. Britain also wants the IMF to tap its $43 billion gold reserve to finance the write-off of its loans outstanding to the poorest nations, which are valued at around $9 billion.
The U.S. wants the World Bank to cover the cost of its own debt relief and is dubious about the need to dig into IMF gold reserves.
Neither side showed signs of moving far from the position it brought into the meeting of finance ministers and central-bank governors here over the weekend. Instead, the officials said they would entertain debt-relief funding proposals at their next gathering, in Washington in April. At the same time, the IMF is expected to present a list of options for paying for cancellation of its loans, including ways in which it could draw on its 103.4-million-ounce gold stock without roiling gold markets.
Despite the discord, British Chancellor of the Exchequer Gordon Brown portrayed the meeting as a landmark in the road toward a debt-relief policy that would free up money for developing countries to spend on health, education and other basic needs, instead of loan payments. "It is the richest countries hearing the voices of the poor," said Mr. Brown, who has staked his political ambitions on the effort to steer fresh aid to Africa and elsewhere.
Antipoverty activists welcomed the G-7's general endorsement of debt cancellation, but underscored the need for the groups to arrive at final agreements at the April meeting and at the leaders' summit that U.S. President George W. Bush, British Prime Minister Tony Blair and others are planning to attend in Scotland in July.
Separately, the G-7 agreed to suspend until the end of the year collecting loan payments from countries affected by the devastating Indian Ocean tsunami, extending an earlier, short-term debt moratorium.
In addition to their clash over the debt-relief issue, the G-7 ministers remained divided over how best to increase overall development aid for developing countries. Mr. Brown has called for a "Marshall Plan" for Africa to double foreign-aid flows, a reference to the U.S. aid effort for Europe after World War II. Supported by Germany and France, Britain pushed for a U.K. plan in which countries would commit future aid spending to back the issuance of development bonds now. The bond revenue would be spent on aid immediately.
Bush administration officials said the U.S., which funds government programs through annual appropriations, can't legally adopt such an approach because the present Congress can't commit future Congresses to specific spending plans. Instead, the administration continues to tout its flagship Millennium Challenge Account program, which it says will direct aid to countries that have demonstrated a commitment to clean, effective government and free markets.
"The U.S. is completely committed to poverty reduction and providing financing to do that," said John Taylor, the U.S. Treasury's top international official who replaced Treasury Secretary John Snow at the London meetings. Mr. Snow didn't attend because of illness.
The U.S., Mr. Taylor said, has greatly increased its foreign-assistance budget over the past four years, including a quadrupling of aid to Africa to $4.6 billion a year. But the Millennium Challenge Account, first announced by Mr. Bush in 2002, has yet to make its first grant, and the administration has fallen billions of dollars behind in promised budget requests for the program.
Unable to agree on a single plan for increasing development aid, the G-7 finance ministers instead agreed that in Scotland the leaders would consider a smorgasbord of options, including those favored by the U.S. and Britain. In principle, member countries could agree in Scotland to increase aid to the developing world, but each would implement that spending in its own way.
Meanwhile, top Chinese officials joined the G-7 ministers and central bankers for side meetings in London, the second time they had been invited to attend the group's meetings. Mr. Taylor and other G-7 officials took the opportunity to reiterate their long-held belief that China should allow its currency, the yuan, to move more freely against the dollar -- a move they believe would allow U.S. and European companies to compete on more equal footing with Chinese firms.
The Chinese officials repeated previous comments that they would make the exchange rate more flexible when they felt the time was right.
"We have a very firm determination leaning to a more flexible exchange rate," People's Bank of China Deputy Governor Li Ruogu told reporters. "There is no timetable."
Write to Michael M. Phillips at email@example.com