Rich nations failed to agree at meetings this weekend on a plan for canceling the debts the world's poorest countries owe to the World Bank and International Monetary Fund. But top US and British officials voiced confidence that an accord will be struck next year to dramatically expand debt relief for several dozen nations in sub-Saharan Africa, Latin America and Asia, reports The Washington Post.
The IMF's top policy-making committee issued a statement yesterday pledging only "further consideration" of large-scale debt forgiveness for poor nations, underlining that sharp differences remain over major problems such as how to cancel debts without hurting the fund and the bank. Nevertheless, Gordon Brown, Britain's chancellor of the exchequer and a leading debt-relief champion, contended that the meetings had helped to advance the cause of extending debt reduction for poor countries well past the current levels of about 50 percent. "There's a growing consensus that the next step is (to give poor countries) up to 100 percent debt relief," Brown said at a news conference, adding that although "there's a lot of work to be done," it concerns "the detail" rather than the principle, and is likely to be resolved in 2005. Britain, he said, chairs the Group of Seven major industrial nations next year and will host the annual summit of leaders from those countries plus Russia.
The Bush administration, which has been working on a debt-relief proposal that departs from Brown's, also thinks that 2005 offers a particularly promising time to forge a deal, said a senior US Treasury official who briefed reporters on condition of anonymity. He noted that negotiations are scheduled then to discuss how much rich countries should contribute over the following three years to the World Bank's lending program for poor countries. The administration has used such negotiations as leverage to change bank policies on previous occasions.
Moreover, it is far from clear how the gap will bridged between the approaches being promoted by Washington and London. Brown's plan would involve billions of dollars in firm commitments by wealthy nations to ensure that the World Bank has the funds to keep providing aid. The commitments envisioned in the US plan are much flimsier, and Washington's proposal also includes the idea of replacing many World Bank loans with grants, which some critics fear would weaken the bank.
Reuters meanwhile explains that Brown has proposed a revaluation of the IMF's massive gold stocks, which would not involve sales, as a way of raising additional cash for debt relief. The IMF's 103 million ounces of gold is one of the biggest bullion caches in the world. Brown denied his proposal to revalue IMF gold had run into opposition. He said the Group of Seven had agreed on Friday to examine the idea and voiced optimism it would succeed. An official communiqué from Saturday's International Monetary and Financial Committee meeting made no mention of Brown's gold revaluation plan nor of a 100 percent debt write-off.
Reuters also notes that Brown's [gold] proposal ran into resistance on three grounds: some national treasuries of IMF shareholder countries would have to book the entire write-down in the year of sale; the likely bearish impact on precious metals markets; and the permanent reduction of IMF assets. South African Finance Minister Trevor Manuel said on Saturday the proposal to revalue the gold holdings should involve both producers and buyers. Canadian Finance Minister Ralph Goodale on Friday dismissed the idea as a "non-starter".
Agence France Presse meanwhile reports the IMF committee in its statement took aim at three factors clouding the horizon for the world economy, which is projected to expand five percent this year before losing steam in 2005 in the face of oil market volatility. It said in effect that the United States had to take steps to reduce its gaping budget deficit, which tends to drive up interest rates as Washington borrows money to finance the shortfall, while Europe and Japan needed to implement macroeconomic reforms to boost growth. A third problem highlighted by the committee was the need for greater currency flexibility in Asia, notably China where a peg with the dollar is seen as undervaluing the yuan and thereby distorting regional trade. The three factors have contributed to imbalances in the world economy, with the United States and Japan growing about twice as fast as the eurozone this year.
Reuters also notes China, which for the first time joined a meeting of top officials from the Group of Seven countries this week, has no immediate plans to enter the rich nations' club, its finance minister said on Saturday. The minister said Beijing attended the G7 gathering because of its rising economic power, a comment that appeared aimed at dispelling speculation China was invited only because Western powers wanted to lecture it on currency matters. During meetings in Washington, China reiterated its pledge to move toward a more flexible currency but gave no timetable for relinquishing the yuan's tight peg to the US dollar. Reuters also reports a G7 source said on Saturday the Group of Seven will not impose a deadline for doing so.