Debt Relief

U.S. weighs raising nations’ debt relief

The Bush administration is exploring proposals to significantly expand debt relief to some of the world’s poorest countries, including forgiving all existing debt, Treasury Secretary John Snow said Thursday.

The issue is expected to be high on the agenda at Friday’s meeting of finance officials from the world’s most industrialized countries.

“Grants and debt relief must be significantly increased – we are considering more options to do so, including those that would provide up to 100 percent debt relief and grants,” Snow said. He didn’t provide details. Specifics of how a possible expansion of debt relief would work will be discussed at the finance meetings, he said.

Snow made his remarks in a speech to a group honoring the 20th anniversary of the Bretton Woods Committee, a nonprofit organization involved in increasing the understanding of international financial and development issues as well the role of the International Monetary Fund and World Bank.

The IMF and World Bank run a program that provides some debt relief to poor countries. Twenty-seven countries have been approved for debt-reduction packages – 23 of those are in Africa. Uganda, Bolivia and Ethiopia are among the countries already getting debt relief.

“I am working with my colleagues in the G7 . . . to achieve a consensus on the best way to solve the debt sustainability problem and ensure that our reforms only result in greater, not fewer, resources to poor countries,” Snow said.

Finance ministers and central bank chiefs from the United States, Britain, Canada, France, Germany, Italy and Japan – the Group of Seven richest countries – meet Friday. The International Monetary Fund and the World Bank hold annual meetings over the weekend.

“I think this can be done in ways that are not highly costly,” Snow said of the expanded debt relief issue in response to questions. “But I would rather focus on the bigger issue . . . because if we want – as I think we all do – a path to better performance of these low income countries, it seems to me that we have to start by saying, ‘Let’s get out of this bad paradigm we’re in, where we are piling debt on them that is not sustainable and denying them, therefore, access to the private markets that are essential to the long term’,” Snow said.

His comments on expanded debt relief were welcomed by groups pushing for full debt forgiveness for poor countries. “We are encouraged to see U.S. support for full debt cancellation and urge the United States to work with other G7 nations to come to a deal on how to finance debt cancellation,” said Neil Watkins, spokesman for Jubilee USA Network.

British Chancellor of the Exchequer Gordon Brown has said that Britain is willing to finance 10 percent of the cost of canceling the debt of the world’s poorest countries, hoping to attract similar offers from other rich nations.

Brown also has called on the IMF to revalue its vast gold reserves and use the increased income to finance the IMF share of debt relief. Debt relief groups contend that if the IMF revalued its gold reserves at current market prices it would boost this asset from $8 billion to $40 billion, freeing up $32 billion that it could devote to debt relief.

“The IMF is sitting on billions of dollars worth of gold they neither need nor use,” said Max Lawson, a policy adviser for Oxfam, the international relief agency.

World Bank President James Wolfensohn told reporters his lending agency supported the U.S. drive to provide more World Bank support to the world’s poorest countries through grants which don’t have to be repaid rather than loans. But he said for this to occur, rich countries needed to replace the lost income from loan repayments with greater financial support.

“It would be much more comfortable for us to give grants so long as someone gives us the money to give grants,” said Wolfensohn, adding that he was eager to hear what new proposals Snow would be making in this area.

Snow was meeting later Thursday with top Chinese economic officials and China has been invited to meet with G-7 finance officials for the first time over dinner Friday night.

President Bush has been accused by Democratic presidential challenger John Kerry of failing to do enough to address America’s soaring trade deficit with China, blamed for the loss of thousands of American manufacturing jobs.

The administration has been increasing pressure on China to stop linking its currency to the value of the dollar, a practice that U.S. manufacturers contend has resulted in a yuan that is undervalued by as much as 40 percent, giving Chinese companies a big competitive advantage over American firms.

In his speech, Snow struck an optimistic note about the world’s economic health. “No major economy is in recession or facing high inflation,” he said. “I am optimistic that the positive track we are on will continue, but this is not the time to be complacent.”

Police stepped up security for the weekend meetings amid continued threat of terrorist attacks against some financial institutions. Certain streets will be closed to all automobile traffic and some parking garages will be emptied of cars.

Forbes.com, September 30, 2004

Categories: Debt Relief, Odious Debts

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