Saturday, September 24, 2005

G-8 Gleneagles debt deal to collapse?

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Remember the promise to cancel the debts of some poor countries?

It seems that the Iraq war and New Orleans reconstruction are going to cost a lot of money. The G-8 Gleneagles debt deal may be cancelled or sidelined.

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http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/09/24/ccdebt24.xml&menuId=242&sSheet=/money/2005/09/24/ixcoms.html

Malcolm Moore, in the Telegraph (London) on 24 September 2005, explains that 'the debt-relief train is heading towards the sidings.'

According to Gordon Brown, the deal to cancel $40billion (£22½billion) of debt owed by the world's poorest countries is "on a knife-edge".

The Telegraph explains that the debt relief process 'has been mired in bureaucracy and no start date has been set...

'Now there is a real chance that debt relief will be shunted to one side for at least another six months, as countries bicker over who will eventually pay for the deal.

'No finance ministers wish to see the payments for debt relief appear on their budgets, and a proposal to pay with the proceeds of selling some of the IMF's gold stocks is now dead in the water...

'A small group of countries, led by Belgium and the Netherlands, but also including Switzerland, Saudi Arabia and Iran, is worried whether the countries in the G8 club of wealthy nations will actually cough up the money they promised at the Gleneagles summit in July.

'Germany in particular, which was never hugely enthusiastic about the proposal, is more likely to renege on the deal in the aftermath of its election, since it is unclear whether it can even form a government.

'In the United States, the support of the Christian right has convinced politicians that debt relief is a good deal, but the issues thrown up by Hurricane Katrina have delayed a bill that promised payment on its path through Congress...

(Paul Wolfowitz is the head of the World Bank)

'The staff of the World Bank, which is owed the majority of the debt, is extremely concerned because forgiving the debt will wipe out a large proportion of the Bank's income. This will dramatically weaken the Bank's finances, and its ability to make loans, unless the G8 countries pay the equivalent sum into its vaults. Leaked memos show staff believe the form of the deal struck at Gleneagles is insufficient to protect the Bank, and Mr Wolfowitz, in a tone that was as conciliatory as possible, has insisted the Bank must remain viable...

'Behind the scenes, Treasury staff, and the Department for International Development are extremely worried, according to one NGO worker. If Brown fails, and the deal is sidelined, there would be enough time for more conditions to be attached, and perhaps for the form of the deal to be fundamentally changed. One proposal is that debt relief would be phased, and applied as regularly as money could be found to fund it.

'"The fear is that instead of total debt cancellation, there could be year-on-year debt relief, which would see countries such as Niger reapplying every year to have their debt written off," said one NGO worker.

'Niger, according to Max Lawson, at Oxfam, still pays $1m a week in debt repayments.'

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http://allafrica.com/stories/200509190724.html

"There have been no official statements from the Bank or IMF to confirm that the debt cancellation is going to come about. U.S. Treasury Department spokesman Tony Fratto added to the tension by stating on Sep. 13 that the G8 deal may be in 'jeopardy'.

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http://washingtontimes.com/business/20050918-102750-6348r.htm

Philip Sherwell, in the (London) Telegraph 19 September 2005, explained that the G-8 debt deal is facing resistance.

According to the Telegraph:

"The much-vaunted British initiative to wipe out the debts of the world's poorest countries, approved by the Group of Eight club of wealthy nations in Scotland in July, has come under threat ahead of next weekend's World Bank annual meeting...

"Tony Fratto, a senior U.S. Treasury official, said: 'It's not a done deal by any means. There are people who want this rewritten.'

"The plan to cancel all debts owed by the 18 poorest - mostly African - nations to international lenders such as the World Bank was heralded as a breakthrough for the British G-8 presidency at the Gleneagles summit, held in Perthshire, Scotland...

"An internal World Bank briefing paper has concluded that its International Development Association (IDA) will be hampered in making loans to low-income countries if the debts are written off, as the bank itself would no longer receive interest payments. In a second attack on the deal, the Netherlands and Belgium, apparently frustrated that they were not consulted over the G-8 deal, have questioned some of the conditions of the debt write-off...

"One American delegate said last week that he thought the prospects for success at the Washington meeting were "not much better than 50-50."

"Bob Geldof, the former rock star who organized the Live 8 concerts to put pressure on G-8 leaders, signaled his own fears at a press conference at the United Nations, alongside Mr. Blair. 'The great leap forward [at Gleneagles] must be implemented at the coming meeting of the World Bank and International Monetary Fund,' he said. 'If it is not implemented, we are looking at a disaster."'





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