Update on G7 Finance Ministers/debt relief/IMF (fwd)

[Robert Weissman <rob@essential.org>]

Financial Times - Monday June 14 1999

Debt relief for poor nations to broaden
By Robert Chote, Economics Editor

Finance ministers from the Group of Seven industrial countries agreed in
Frankfurt at the weekend that existing debt relief arrangements for poor
countries should be made deeper and wider. The scheme will be finalised at
the Cologne G7 leaders' summit next weekend.

The plan would increase the number of highly indebted poor countries
eligible for relief from 29 to 36. The cost in "net present value" terms -
namely if it were to be paid for today with a lump sum - would more than
double from $13bn to $27bn.

Development lobby groups, such as Jubilee 2000, gave a muted welcome to the
G7 debt plan as thousands of demonstrators gathered on the banks of the
River Thames in London to press the case for more ambitious debt
cancellation. "It is a modest step forward. There is everything to play
for," said Justin Forsyth of Oxfam, the aid agency.

Officials said there had been agreement in principle to reduce the target
for debt-to-export ratios in indebted countries to 150 per cent from 200 per
cent or more under the current arrangements. The amount of relief available
will also be increased by calculating the entitlement to help earlier.

There was also agreement to reduce the target for debt-to-government revenue
from 280 per cent to 250 per cent. The UK wants provision for an even lower
target "in exceptional circumstances", but officials see only an outside
chance of this being accepted.

The policy records that countries have to establish before receiving full
debt service relief would be reduced to a maximum of three years. But
countries would still have to wait up to six years for debt stocks to be cut
to the target levels.

Gordon Brown, UK chancellor of the exchequer, wants multinational companies
to contribute to alleviating the debt burden of poor countries. Mr Brown
believes that the priority now is to ensure debt relief is "front loaded",
so that countries benefit quickly. This requires cash from governments, but
also individuals and companies.

Proposals for the sale of IMF gold to help finance debt relief also took a
step forward in Frankfurt. Hans Eichel, German finance minister, said Bonn
would no longer oppose the sale and reinvestment of up to 10 per cent of the
IMF's $27bn stockpile to help pay for relief. The Bundesbank is expected to
sign up in principle over the coming week, although it still sees gold sales
as a last resort.

Analysts said the unanimous agreement of G7 governments to IMF gold sales -
coming on top of the UK's recent decision to sell more than half its
reserves - could push the gold price below $250 an ounce.

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