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Last Updated: Thursday, 22 September 2005, 23:01 GMT 00:01 UK
Lenders edge closer to debt relief deal
By Andrew Walker
BBC economics correspondent in Washington

IMF managing director Rodrigo de Rato
Lenders hope to reach agreement on implementing debt relief soon

The G8 agreement at Gleneagles in Scotland on debt relief was in effect a proposal, not a definitive decision.

What the G8 proposed in July was the cancellation of the debts owed by some of the poorest countries - 18 mostly African nations in the first instance - to three international organisations.

The G8 countries are for sure the most influential players in those institutions.

But the decisions to cancel debts have to be taken in the committees of the International Monetary Fund (IMF), the World Bank and the African Development Bank, where other countries have a say.

Development lobby groups say it's vital that there is an agreement this coming weekend, when finance and development ministers from the IMF and World Bank member countries meet in Washington.

But the heads of the IMF and the World Bank have been downplaying the prospect of getting it all done in the next few days.

Achieving consensus

The managing director of the IMF, Rodrigo de Rato, said in a BBC interview that he expects to get a sense of what ministers want.

There is a broad consensus that debt relief should be done, that it is a useful tool and that it can make a big difference for some countries
Rodrigo de Rato, IMF managing director

He said the IMF had done a lot of work on the question and he expects to be able to get on with applying it "in the next few weeks".

The president of the World Bank, Paul Wolfowitz, said he wants the agreement implemented "as soon as possible. The sooner the better. But obviously we have to have a consensus".

One of the key problems is the effect that debt cancellation would have on the finances of the organisations, and so on their ability to continue providing financial aid to the poorest countries.

It is particularly an issue in relation to the World Bank and its subsidiary - the International Development Association (IDA) - that makes subsidised low interest loans to the poorest countries.

About 20% of the $33bn (£18.4bn) it is expecting to lend over the next three years would come from repayments of earlier loans.

So debt cancellation would mean less money coming in for new aid.

Extra resources

When the G8 announced their debt agreement in July, their communique also said they would "provide additional resources to ensure that the financing capacity of the international financial institutions is not reduced".

In the World Bank, it is said that the deal is being delayed because some countries, in particular Belgium and the Netherlands, want stronger commitments from the G8, especially the US, about those extra resources.

In the IMF, most of the debt relief can be covered by funds it already has. But Mr de Rato has acknowledged that there will be a need for extra resources.

So the wrangling goes on over the weekend.

But the leaders of the two organisations clearly think it is going to go through sooner or later.

Millennium goals

Mr de Rato told the BBC: "There is a broad consensus that debt relief should be done, that it is a useful tool and that it can make a big difference for some countries."

He added: "It's very important at a moment when we have a big challenge to reduce poverty and achieve the millennium development goals".

The goals are agreed international targets for reducing poverty and related problems.

Mr Wolfowitz said: "I think everyone agrees on the desirability of cancelling these debts".

It will probably happen, and there will be progress of some sort over the weekend.

But the 18 countries that stand to benefit in the first phase will likely have to wait a little longer.


SEE ALSO
World Bank hopes on debt relief
22 Sep 05 |  Business
World Bank rediscovers inequality
20 Sep 05 |  Business
World Bank offers India $9bn loan
21 Aug 05 |  Business
Government defends G8 aid boost
09 Jul 05 |  Business
Trade 'vital' to African progress
04 Jul 05 |  Business
Wolfowitz seeks more Africa aid
20 Jun 05 |  Africa

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