The Hindu Business Line : US, allies divided over debt relief to poor nations

THE major industrial nations are still to come to final terms with the broad outline on debt relief - an issue that received a lot of attention at the annual meetings of the World Bank and the International Monetary Fund here.

There are deep divisions between the US and some of its European allies on how best to resolve the debt burden of Iraq and other poor countries even if public references by officials and statements put out at the end of the meetings seem to suggest optimism on the subject.

The Bush administration is pushing for a plan that will essentially allow the debt-ridden nations to write off their loans, but the new loans will be cut by the amount of debt forgiveness.

Britain has come up with an alternative that seeks to expand debt relief by revaluing the gold reserves of the International Monetary Fund by global prices and having the wealthy commit more money.

The Chairman of IMF's policy-making committee, Mr Gordon Brown put on a positive outlook saying that there is the consensus that multilateral debt relief has to be addressed as soon as possible and some resolution can be achieved by the end of the year.

One perception is that with countries such as France and Canada veering towards Britain's proposal, countries such as the US, Germany and Japan will fall in line eventually.

The issue of easing the debt burden of poor nations and general increase in aid flows was discussed by not only the Group of Seven Industrialised Nations but also by the IMF's International Financial and Monetary Committee and the Development Committee. One major topic of discussion within the industrialised world was the question of Iraq's foreign debt put at around $120 billion.

The US wants as much as 95 per cent of Iraq's debts to be written off; but France and Germany are amenable to only 50 per cent this year, with a promise that they will return to the issue in three years when the country is more stable.

It is being mentioned that countries opposed to a total write-off of Iraq's debts want a linkage between this issue and more generous debt relief programmes for poorer countries in the rest of the world, notably in Africa.

Meanwhile, the Development Committee, in a communication at the end of its meeting, expressed concern that most Millennium Development Goals endorsed by world leaders in September 2000 would not be met by most developing countries. Pursuing sustainable growth, sound macro economic policies, debt sustainability, open trade, poverty reduction and good governance need to be reinforced by "stronger international action and partnerships including reforming trade, more and more effective aid and stronger private flows to make progress on the Millennium Development Goals."