Global Policy Forum

By John Schmid

Finance ministers of the seven richest economies agreed over the weekend to aid 36 of the world's poorest nations with a plan to ease their crushing debt burdens. If approved this week at a summit meeting of the Group of Seven industrial nations in Cologne, the proposal would for the first time finance some of the debt relief by selling about one-tenth of the gold stockpiles of the International Monetary Fund.

Although the amount of gold to be sold is relatively small, the sale seems certain to further depress world gold prices, which have slid to their lowest level in two decades on government plans to unload the precious metal on world markets. Gold for immediate delivery, which closed Friday in London trading at $260.65 an ounce, was quoted Wednesday at $259.25 an ounce - its lowest level since May 1979. The use of existing gold reserves to aid impoverished nations reflects a major policy shift by Germany's eight-month-old center-left government, which announced over the weekend that it was prepared to reverse Bonn's long-standing aversion to tapping the IMF's gold supply. ''There will be a very limited volume of gold sales, about 10 million ounces,'' said Finance Minister Hans Eichel, chairman of a meeting of G-7 finance ministers in Frankfurt on Saturday. Led by resistance from the Bundesbank, the German central bank, Bonn until recently was the most vocal opponent of using gold to forgive Third World debts, even as the other members of the group - which also includes Britain, Canada, France, Italy, Japan and the United States - gradually lined up behind the proposal. ''Germany will not object if the others want it,'' Mr. Eichel said. Germany signed on after international aid agencies campaigned against the ''debt trap,'' which they described as a crippling burden for the developing world.

Currently, 41 of the world's poorest nations collectively owe $220 billion, a sum so staggering for them that social critics and aid agencies say debt-service obligations trap these nations, many of them in Africa, in poverty and preventable disease. Despite debt rescheduling in the past, some still spend more than half their national budgets on debt payments. The new outline, to be presented to G-7 heads of state when they gather Friday for a three-day meeting, will be more generous than the existing Heavily Indebted Poor Country initiative mounted in 1996, finance ministers said. According to the British chancellor of the exchequer, Gordon Brown, who has championed Third World debt cancellation, 36 destitute nations will be eligible for debt relief, up from 29 under that existing program. The Cologne program foresees as much as $70 billion in debt forgiveness, which by some measures is more than twice the volume of the current plan, Mr. Brown said. The new initiative reduces the current six-year qualification period that poor nations must bear before receiving debt relief, Mr. Brown said, although the ministers declined to give details of the new time frame. It also offers a more flexible definition of ''sustainable'' levels of debt payments by poor nations, allowing a greater number to qualify. Under the current program, only Uganda and Bolivia are theoretically eligible for a debt reduction.

Despite the measures, the Cologne declaration is thought unlikely to silence critics of policies toward Third World debt. ''This agreement is probably still going to leave countries spending up to a fifth of their government revenue on debt servicing,'' said Kevin Watkins, a spokesman for Oxfam, an aid agency.

Acknowledging the ''many competing considerations,'' the U.S. Treasury secretary, Robert Rubin said the G-7 had struck ''an appropriate balance'' between poverty reduction and economic reform. With its 103 million ounces of bullion valued at around $27 billion, the IMF presides over the world's second-largest stockpile, behind that of the U.S. government. The amount envisioned for sale is about one-tenth of that, about 300 tons, valued at $2.7 billion

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