G-7 Agrees to Debt Relief for Poorest Countries
British Chancellor of the Exchequer Gordon Brown said he had won the support of finance ministers from the world’s wealthiest nations Saturday for his plan to offer debt relief to the world’s poorest countries, but the United States balked at some elements of the package.
“I believe this summit will be remembered as the summit for 100% debt relief,” Brown told reporters at a news conference ending a two-day conference of government officials and business leaders from the Group of 7 industrialized countries -- the United States, Canada, Japan, Germany, France, Britain and Italy.
U.S. Treasury Undersecretary John B. Taylor, however, said Brown’s International Financial Facility plan, which over the next decade would forgive all debt from the poorest countries and double aid to Africa, “would not work for the U.S.”
Taylor said the U.S. supported the issue of debt relief. “The United States is completely committed to poverty reduction,” he said, adding that Washington had nearly doubled its contribution to development aid to Africa and AIDS projects in the developing world between 2000 and 2004.
But he said the particular mechanism of Brown’s plan was a nonstarter for the United States. “It works for other countries,” he said, “and that’s fine.” Bush administration officials have said that Congress appropriates funds annually and cannot commit to a long-term plan such as Brown’s.
Rather than debating alternative ways to raise money, Taylor said the U.S. “wanted to make people’s lives better by contributing directly to specific projects.”
U.S. plans, he said, are focused on reducing debt to zero now and proceeding with a system of grants to heavily indebted countries, rather than more loans.
The main issue, he stressed, was “that we are all interested in debt relief ... and the ultimate goal is poverty reduction.”
On Friday night, former South African President Nelson Mandela made a strong appeal to the finance ministers to help the world’s poorest countries. On Saturday, Brown reminded those gathered of Mandela’s words, saying he had “urged us to take urgent action against poverty in Africa and across the world. It is the richest countries hearing the voices of the poor.”
Although Brown said the G-7 participants had agreed to debt relief and the financing of development, he added that the terms and methods of payment had yet to be discussed with officials from the International Monetary Fund and World Bank. Guarantees by World Bank shareholders and IMF gold reserves would fund the debts, Brown said.
“This is the first time that the governments of the G-7 have come together to talk of debt relief as much as 100%,” Brown said.
Countries across southern Asia hit by the Dec. 26 tsunami would also get debt relief. Nations requesting help would have debts deferred to the end of 2005 without having to pay interest, and reconstruction needs would be addressed after a preliminary assessment by the IMF and World Bank.
The conference’s final communique said monetary exchange rates should reflect economic fundamentals, a clear call to the Chinese to move to a more flexible exchange rate.
The Chinese yuan, however, would remain pegged to the dollar.
“We are determined to move toward a flexible exchange rate, but no timetable,” Li Ruogu, deputy director of China’s central bank, told reporters Saturday morning.
Discussion with the Chinese officials included an exchange of views on fiscal and monetary policies, Brown said.
“We have benefited very much from the informal and the constructive and timely way in which this dialogue is now being conducted. Many bilateral meetings were taking place with Chinese officials.
“We are all interested in the role the Chinese are playing in the world economy,” he said, adding that he would visit China this year.
“The key priorities for the world economy are for each continent to play its part for continued fiscal consolidation in the United States of America, for further structural reform in Europe and Japan,” the British finance minister said.
“And we were particularly anxious that there should be an ambitious result at the Hong Kong World Trade Organization ministerial [meeting] later this year.”