Global Policy Forum

By Abid Aslam

But agreement on how to finance debt write-offs for the world's poorest countries, most of them African, again eluded G7 members--Britain, Canada, France, Germany, Italy, Japan, and the United States--and the international financial institutions. African officials demanded that rich countries put an end to years of haggling and take decisive action. "The important thing is not to theorize," Senegalese Finance Minister Abdoulaye Diop told a news conference. "What we need is a substantial increase in resources." Diop held a joint news conference with counterparts from Equatorial Guinea, Lesotho, and Sierra Leone to voice disappointment at the lack of progress on a debt deal.

Anti-debt activists bemoaned the lack of progress, saying that lives were being lost because poor countries were forced to spend more to service foreign debt than to provide health and education for their people. "Delay costs lives," the Jubilee USA Network of campaigners said in a statement. "Since the G7 began discussing [the latest] debt cancellation proposals in June 2004, more than four million children under age five have died from preventable diseases which could have been addressed with the extra funds released through debt cancellation."

At issue in the debt talks had been a proposal by British Chancellor of the Exchequer Gordon Brown to sell a portion of the IMF's gold reserves and use the proceeds to cut debt. At least three other plans also were discussed, sponsored by the United States, Germany, and Japan. France and Germany ruled out gold sales. U.S. Treasury Secretary John Snow said Washington was "not persuaded by arguments for IMF debt relief" and believed gold sales were unnecessary and unwarranted. Instead, he pushed a plan to cancel World Bank and African Development Bank loans, saying this would be enough to bring debt down to levels at which borrowing countries could afford to service their loans. Japanese Finance Minister Sadakazu Tanigaki said complete debt write-offs could provide too much relief. Even so, Britain's Brown said his plan was moving forward. "Everyone accepted there must be more money for debt relief," he told a news conference after the G7 talks. "We believe that will come at Gleneagles," he added, referring to a July summit in Scotland of the Group of Eight--the G7 plus Russia.

The IMF's African governors, in a statement, said countries that had gone through a series of economic and administrative hoops designed by international creditors to establish their fitness for debt write-offs "are falling back into the debt trap." This, they said, was because the existing debt program had provided insufficient relief so its benefits were cancelled by "external shocks"--falling export prices, for example. Instead, African officials urged "a framework that will allow for a complete write-off" of claims against their countries by wealthy governments and the IMF, World Bank, and other such multilateral institutions. Failure to move was hurting the IMF, they warned. "The Fund's image in Africa is declining, especially given that people are not seeing poverty declining," they said, even after implementing IMF policy packages known as Poverty Reduction and Growth Facilities and completing the existing debt-relief program, known as the Heavily Indebted Poor Country (HIPC) Initiative.

The HIPC initiative was launched in the mid-1990s amid much fanfare. It marked the culmination of a decade's strenuous campaigning and years of hard negotiating with the IMF, World Bank, and multilateral development banks in Africa, Asia and other regions to get them to agree to address their own roles in the Third World debt crisis. Previously, borrowing countries could only seek debt relief through separate mechanisms set up by government and commercial lenders.

Debate about selling IMF gold to finance the HIPC program or some expanded version of it, dates back at least to the mid-1990s. Washington has said it feared that offloading the IMF's gold reserves would destabilize bullion markets. But the IMF has said that markets could handle a sale of about 13-16 million ounces of its 103.4 million ounces of gold without difficulty. Finance Minister Timothy Thahane of Lesotho said that such sales could be executed without disrupting markets, noting however that some African countries relied on gold sales for vital foreign exchange earnings and Brown's plan could do more harm than good if executed badly. "There is no need to be afraid that gold sales would be done in a way that depresses gold prices," Thahane said, citing the smooth experience of previous sales by central banks.

Separately, G7 and IMF policymakers agreed over the weekend that rising fuel costs posed a threat to the world economy and called for efforts to promote energy efficiency and diversity. This would include "removing barriers to the development of alternative fuels," the fund said in a statement.