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Last Updated: Monday, 26 September 2005, 10:44 GMT 11:44 UK
Debt deal hailed but details beckon
By Andrew Walker
BBC economics correspondent in Washington

The World Bank and the International Monetary Fund have agreed to cancel up to $55bn (31bn) in debts owed to them by some of the world's poorest countries.

World Bank president Paul Wolfowitz (left), development committee chairman Trevor Manuel and IMF managing director Rodrigo de Rato
Smiles all round, but funding details have still to be worked out

The agreement here in Washington, at the annual meetings of the two organisations, was what was needed to ensure the debt cancellation proposals from the G8 summit at Gleneagles, in Scotland, will be implemented.

Some details - important ones - have not been agreed.

But this decision means that the debt cancellation will happen.

Trevor Manuel, the South African finance minister who chaired the key World Bank committee, said debt relief had been turned from a G8 proposal into a G184 (the number of World Bank and IMF member countries) decision.

Eighteen countries - 14 in Africa and four in South and Central America - are due to have their debts to the IMF and the World Bank cancelled when the deal comes into effect.

For IMF debt, that will be the end of the year. For the World Bank it is likely to be July 2006, the start of the international lender's new financial year.

Extra funding

There is one other element in the G8 proposal that has not, and could not, be agreed here - the cancellation of debts owed to the African Development Fund, run by the African Development Bank.

Woman and child in Niger
Waiting for help - Niger is among 18 nations that stand to benefit

The bank's president, Donald Kaberuka, said that work is in hand and he too is expecting the debt cancellation to happen in July next year.

So what is there still to do?

For one thing, richer countries need to agree details of extra funding for the World Bank, to ensure that the debt cancellation does not undermine its financial support for the poorest countries in the future.

This is important because something like 20% of the World Bank's new lending to these poor countries is recycled repayments on earlier loans.

Some countries were worried about this. The breakthrough was the result of a letter signed by G8 finance ministers, promising the necessary resources.

The details haven't been settled but the principle has, so it is pretty clear that the World Bank deal will go ahead.

Domestic problems

This does not, however, mean the end of debt problems for developing countries.

Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, Zambia

Even the 18 nations who will benefit first from the new agreement have some outstanding concerns.

There are some who are being sued by private creditors. Courts in various countries have made awards totalling over $500m.

Then there are the 20 countries that are potentially eligible for the deal.

Some are in the process of completing an earlier debt reduction (not cancellation) initiative and will be eligible for the new deal when they do.

The rest have problems of conflict or domestic politics that have prevented them from producing the economic and poverty-reduction policies required to get started.

Some campaigners are concerned that all countries involved in this extended debt relief will have to meet economic policy conditions that, they say, make poverty worse.

These conditions include policies such as privatisation and removing barriers to international trade, which expose domestic industries to more competition.

Not eligible

Campaigners also say that the debt cancellation, welcome though it is, should apply to many more very poor countries.

The British International Development Minister Hilary Benn said that the UK does want to go further.

One possible beneficiary of bringing in new countries is Kenya, which has been deemed not quite eligible because the IMF says its debt position is sustainable.

The country's Finance Minister David Mwiraria said he feels Kenya is being punished for managing its finances rather better than other countries have.

So we certainly haven't heard the last of this issue. There is no question, though, that the Washington deals are an important step.

World Bank and IMF back debt deal
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09 Sep 05 |  Scotland
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09 Jul 05 |  Business

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