[stop-imf] NYT: G7 considers debt cancellation; Europeans may block

[robert weissman]

[relevant portion of story starts halfway down]

The New York Times
September 23, 2004
Guess Who's Invited to Dinner
By ELIZABETH BECKER

WASHINGTON, Sept. 22 - In recognition of its growing economic power,
China will meet with the Group of 7 for the first time next week in what
could be a prelude to joining the elite club of wealthy industrialized
nations.

John Taylor, the under secretary for international affairs at the
Department of the Treasury, said the meeting would be a "historic first
engagement" and was recognition of China's expanding role in the global
economy.

"The engagement of China is very important,'' Mr. Taylor said.

Mr. Taylor added that "China is a large, growing economy.'' Already, the
economy of China is larger than Canada's and nearly as large as Italy's,
both of which are members of the Group of 7.

The price of China's entry into the group could be the revamping of its
currency, making it more flexible and stronger against other currencies,
especially the dollar. The United States and Japan have been pushing
China to end its practice of pegging its currency, the yuan, to the
dollar and let it float or revalue upward.

Russia was invited to be part of a Group of 8 countries during the
Clinton administration because of its political power, not its economic
prowess, and it continues to attend the annual summit meetings for heads
of state and top officials.

An opening of the Group of 7 to China would be the first expansion of
the economic group. But China's first session with the ministers is only
a limited affair, occurring at a dinner next week on the sidelines of
the annual meeting of the World Bank and the International Monetary Fund.

As the host country for the Group of 7 meeting, the United States has
been pushing for improved relations with China and forgiveness of some
of Iraq's estimated $120 billion debt.

But even giving China a small toehold into the group could anger many
American manufacturing companies and unions which consider China more as
a commercial enemy than an ally. They have accused China of flooding the
United States with cheap exports, made even cheaper with its undervalued
currency. This, they claim, amounts to unfair trade.

In this election year, some of the loudest complaints have come from
manufacturing companies and labor unions in swing states. Two weeks ago,
a coalition of unions and industrial associations filed a petition with
the Bush administration, asking it to sue China over its currency at the
World Trade Organization. The administration rejected the proposal.

At a news briefing on Wednesday, Mr. Taylor said the administration was
"very positive" about the steps China has taken to prepare for making
its currency flexible.

Mr. Taylor also said that he hoped that the meetings would push forward
a commitment from the world's wealthiest nations to forgive a sizeable
amount of Iraq's debt before the end of the year.

But the United States has failed to get a firm consensus from its
European allies. The issue of Iraq's debt has become intertwined with a
European demand that in return, the United States must support
stepped-up relief for African nations and other poor countries as well
as make a commitment that debt relief would not rule out an increase
foreign aid.

"When the United States asked us for so much debt relief for Iraq, we
said the answer was to also relieve the debt of the poorer nations,''
said a European diplomat who asked to be anonymous. "Now the Americans
are trying to come along with debt relief for the poor but we are afraid
they will then dry up the money for foreign aid that these poor
countries deserve.''

Normally Iraq would not qualify for debt relief because its income is
too high. In response to the European demand, the United States came up
with a program to give relief to some 30 poor countries that do qualify.

When asked if this would mean less money for foreign aid, Mr. Taylor
said that debt relief and other changes were necessary before aid could
be effective.

James D. Wolfensohn, the president of the World Bank, said in an
interview on Wednesday that replenishing the coffers of the World Bank
to ensure that it could continue to give needed foreign aid and grants
was a big concern.

"The United States initiative is absolutely correct,'' Mr. Wolfensohn
said. "Debt relief is critical but we also have to ask, 'How will you
fund the future?' ''

The World Bank has already overseen $53 billion in debt relief for the
world's poorest countries. In recent years, the cause of debt relief has
been adopted by some prominent activists, like Bono, the Irish rock
star. Charities and other nongovernmental organization have lobbied
Washington and European capitals to come up with an expanded debt relief
program during the annual meetings next week.

Several groups, including Jubilee USA Network and Health GAP, which
promote help for countries fighting the AIDS epidemic, said on Wednesday
that with African nations spending $15 billion annually on debt
repayment, it was essential that their debts be forgiven.

But the disagreement between Washington and its Group of 7 partners over
debt relief and foreign aid could quash hopes of a compromise.