[stop-imf] U.S. Debt Relief 'Most Doable' Approach

Thu, 03 Feb 2005 01:32:23 -0500

BNA

      /*/International Finance/*/

    *U.S.* Debt Relief 'Most Doable' Approach
    Taylor Says; G-7 Likely to Keep Forex Stance

The U.S. proposal for debt forgiveness for poor countries is "the most
doable" and "sound financially and economically," Treasury
Undersecretary John Taylor said Feb. 1, speaking ahead of the Group of
Seven meeting of finance ministers and central bankers, where debt
relief and development are expected to figure prominently on the agenda.

Taylor also reiterated Treasury Secretary John Snow's remarks that the
ministerial, taking place Feb. 4-5 in London, is expected to retain the
language on foreign exchange policy that was crafted last February in
Boca Raton, Fla.

That communique said exchange rate volatility and disorderly movements
"are undesirable for economic growth" and also spoke to the desirability
of more flexible exchange rates around the world.

China, which will participate in part of the ministerial--as it did for
the first time last fall in Washington--is taking steps that are
"consistent" with moving to a more flexible exchange rate policy, Taylor
said, but the matter of setting timelines for achieving that "is not
what we're hearing and we can understand why."

On the issue of debt relief, Taylor said the United States is hoping for
discussion and is "willing to talk." The matter will not necessarily get
settled at the Feb. 4-5 meeting in London though hopefully it will
advance. A progress report on debt relief and grant financing will be
discussed, he said.

The U.S. plan would provide 100 percent forgiveness for the debt that
the poorest countries--those in the Heavily Indebted Poor Countries
initiative--owe the World Bank and the African Development Bank and
Development Fund and ensure they receive only grants after that for a
number of years. It would maintain net transfers; that is, if a country
is paying $20 million in interest a year to the bank and receiving $100
million in loans annually from the bank's International Development
Association, the debt would be forgiven and the country would henceforth
receive $80 million a year, in grants, Taylor said by way of an
illustration.

      *U.S.* Cannot Back U.K.'s Aid Mechanism.

Taylor said Britain's proposal, championed by Chancellor of the
Exchequer Gordon Brown and recently endorsed by Germany, to create an
International Finance Facility is not something the United States can
support because of the nature of the financing mechanism.

"The United States has indicated the IFF does not work for us for budget
reasons" because of the way Congress appropriates funds, Taylor told
reporters. He said "that's fine" if other countries want to take part
"but the United States just cannot support that."

The IFF would seek to raise money for development on a multi-year basis
by issuing bonds. Britain has the chair of the Group of Eight--the G-7
plus Russia--and Brown will urge other countries to step up their
commitments, particularly to help Africa.

Taylor defended the U.S. record on development, saying U.S. aid has
increased "dramatically," rising from $10 billion a year to $19 billion,
while aid to Africa has increased from $1.1 billion in 2000 to $4.6
billion in 2004.

Taylor also said he expects discussion on the U.S.-backed proposal for a
new kind of International Monetary Fund facility--a program monitoring
arrangement--that would keep the IMF engaged with countries, helping to
design economic policy and benchmarking progress, but countries would
not have to borrow.

"We found a number of countries, some good performers, interested in
moving in this direction," he said.

In another development topic, asked if the United States could support
someone like Brown for the presidency of the World Bank--a position that
has always gone to an American--Taylor said the United States wants "the
best person" for the job, meaning someone with good leadership and
management skills, international experience, and the "commitment and
drive" to put forward policies that increase growth in the developing world=
.

      *Consulting on World Bank Post.*

"We're consulting with people around the world," Taylor said.

Taylor was also asked if he intends to stay on as Treasury undersecretary.

"I'm working at my job as hard as I can. We've got a good meeting ahead
of us =85 and I'll be going to the Middle East right after" the London
ministerial, he told reporters.

Previewing the overall agenda for the G-7 meeting, Taylor said this
would be his 16th meeting in four years and he noted the differences
between now and four years ago.

Emerging market economies "are now almost an engine of growth in the
world," in contrast to 2001 when there were financial crises in Turkey
and Argentina.

Secretary Snow will appeal to his counterparts to continue to focus on
fighting terrorist financing, another item that was not on the table
four years ago.

In contrast to the 2001 recession, the United States is now growing
"very satisfactorily," having expanded 4.4 percent last year, Taylor
noted. But other countries "aren't growing so rapidly," Germany in
particular, he said.

      *Snow to Outline Bush Agenda*

Snow will talk about President Bush's second-term agenda, including
Social Security and tax reform, and, with respect to the Doha
Development Round, urge ministers to accelerate the process of "getting
good offers out there," achieving good progress in removing barriers to
financial services, Taylor said.

Besides China's participation for part of the meeting , there will be a
side meeting when the finance ministers of Brazil, South Africa, India
and China will join the G-7, which Taylor described as part of the
group's "continuing outreach" to emerging markets. There will also be a
meeting with Nelson Mandela.

Snow will hold bilateral meetings with his counterparts from Russia,
China, the European Union, India, Canada, France, Germany, and Japan,
Treasury announced.

Meanwhile, debt relief advocates wrote to Secretary Snow urging that the
United States support full forgiveness for the debt poor countries owe
the IMF, World Bank and other multilateral lenders. The letter attached
signatures of thousands of petitioners.

"We have been encouraged by the U.S. Treasury's support for up to 100
percent multilateral debt cancellation, which you announced at the
October 2004 annual meetings of the IMF/World Bank. But now it is time
to move beyond rhetoric and into action," Neil Watkins, the national
coordinator for Jubilee USA, wrote. "It is critical that you advocate
this weekend within the G-7 for a deal on full multilateral debt
cancellation, for all impoverished nations, without harmful conditions
attached."

Watkins said they are aware of remaining differences between the United
States, Britain, and the other G-7, particularly on how debt relief
should be financed. The network urges the phased market sales of IMF
gold as a mechanism it argues would generate $30 billion, enough to
cover IMF and World Bank debt cancellation.

Taylor, asked about the idea of selling IMF gold, said it was "not a
proposal we've taken a position on, one way or another."

/By Diana I. Gregg/