[Ip-health] NEWS: G7 ministers at odds over debt relief

[Paul Davis]

From: "Robert Naiman" <naiman@cepr.net>


Copyright 2002 The Deseret News Publishing Co.
The Deseret News (Salt Lake City, UT)


February 10, 2002, Sunday

G7 ministers at odds over debt relief

Reuters News Service

OTTAWA -- Finance ministers from the world's
richest nations on Saturday failed to agree on how
best to ease the problem of crippling debt in the
Third World.

"There's the position taken by the United States,
and the position taken by everybody else," was how
one source put it after finance ministers from the
Group of Seven industrialized nations finished a
two-day meeting near Ottawa.

Washington favors grants as the way forward
because, it argues, loans only leave poor
countries more heavily burdened with debts. Others
fear this could jeopardize the financial
well-being of lenders such as the International
Monetary Fund and the World Bank. And while U.S.
Treasury Secretary Paul O'Neill said Saturday that
some progress was made in the dispute, others
weren't so sure.

"The debate will continue but nobody really
expected it to be resolved at this meeting," the
source added.

German deputy finance minister Caio Koch-Weser
said there was a slight meeting of minds at the
meeting.

"Our respective positions may have got closer but
there's scope for further movement."

The thorny issue of debt relief was first up on
the agenda at the G7 meeting. But finance
ministers couldn't agree on a consensus, and
looming ahead in March is a U.N.-sponsored
conference that will discuss aid to poor countries
and improvements to the global economic and
financial system.

While the communique issued by the G7 ministers
Saturday recognized the difficulties faced by the
world's poorest countries in reducing poverty and
raising living standards, it also "underlined the
need for more effective use of development
assistance and a commitment to sound policies,
good governance and the rule of law by all
countries."

G7 finance ministers also pledged to resolve the
dispute, which was over fresh funding for the
International Development Association, the lending
arm of the World Bank, "to ensure that additional
resources for development are made available."

A request for a cash boost of about $12.5 billion
for the IDA was supposed to have been met in
December, but was delayed because of the dispute.

Koch-Weser said the U.S. position was that grants
should make up around 40-50 percent of funds
provided by the IDA, much more than the maximum 10
percent favoured by European countries.

While Europe sees scope for a higher percentage of
grants for countries emerging from war, it fears a
reliance on this form of debt relief could
endanger the IDA.

"In the long run the sustainability of the IDA is
based on reflows," said Koch-Weser. "Recipients in
the past like China are now major repayers and we
don't want to risk the sustainability of the IDA."

But the United States -- the biggest contributor
to the IMF and other agencies -- has continued its
push to use more grants, saying there was no point
in lending to poverty-stricken countries that
can't repay them.

"I think we got an agreement that we should
together look at conditions that should cause us
to make grants instead of loans," O'Neill said. He
cited as examples money given to countries to help
them recover from the devastation of war or where
incomes average less than $1 daily.

"We moved away from percentage questions to a set
of questions of what are the substantive things
that should drive the distinction between loan
money and grant money, so in that sense I think we
did make some substantial progress today," O'Neill
said.

The G7 comprises the United States, Britain,
Canada, France, Germany, Italy and Japan.