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Saturday, June 19, 1999 Published at 22:38 GMT 23:38 UK

Will debt be cancelled?

By Andrew Walker

Third world debt is a problem that has been with us for an awfully long time - at least since 1982 in fact, when Mexico warned its bankers that it would not be able to pay, sending shock waves around the international banking industry.

World Debt
Since then we have had a stream of initiatives. The very poorest countries are the last in the queue. Why? Because their debts are a serious problem only for themselves.

The richer developing countries - like Mexico and Brazil - owed such large amounts that their problems could have led to the collapse of some of the big American banks.

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A spreading international financial crisis dragging down banks around the world was a real risk; and all of us would have felt the effects of that. So through much of the 1980s and early 1990s, there were strenuous efforts, led by the United State to sort out these problems, with some success. There were no catastrophic bank failures and most of the countries concerned have put in at least a period of respectable economic performance.

By contrast, the countries that the debt pressure group Jubilee 2000 focuses on are small blips on the international financial radar. They owe some money to the banks, but not much. Their debts are dominated by money owed to governments, mostly in Europe, North America and Japan, and to international organisations like the International Monetary Fund and the World Bank. But the repayments - which they don't all make - are enough to be a huge burden on the countries themselves.

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For a few years now, however, this group of countries, known as the highly indebted poor countries, have been the focus of a lot of attention at the IMF and the Bank, and among the big economic powers too. Britain has been pushing this effort from the start - under both the present and previous governments.

It is now two and a half years since stage one of the debt reduction initiative for these countries was agreed. Now, there is growing momentum behind the idea of expanding it, so that it gives more debt relief to more countries, more quickly.

Groups like Jubilee 2000 are partly responsible. They have given debt a much higher political profile. But the change of government in Germany late last year is also important. The previous administration of Helmut Kohl was much more sceptical about the merits of reducing debt. The Japanese government also seems to be more open to the idea than it used to be.

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It is always rash to say that any political decision is inevitable. But the commitment to more debt relief among the big powers seems to be there. There could be a final agreement to improve the current scheme when the IMF and the World Bank hold their annual meetings in Washington in September. But if does happen, it will be about debt reduction - not the outright cancellation that Jubilee 2000 and others would like.

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