US and Britain deal over Africa debt write-offs
The US and Britain have reached an agreement on how the billions of dollars that the world’s poorest nations owe to international lenders can be erased, removing the last impediment to an accord long sought by the richest nations, The New York Times reported today.
Treasury Secretary John Snow and Chancellor Gordon Brown will present their proposal to a meeting of the finance ministers of seven of the Group of 8 industrial nations today in London, the Times quoted a senior US official as saying.
The plan would free 18 countries, most of which are in Africa, from any obligation to repay the estimated $16.7bn (€13.7bn) they owe the international lenders, the official told the Times, speaking on condition of anonymity because a formal announcement of the agreement had not been made.
The debts will be written off by the lenders in an effort to allow the debtor countries to start fresh, get their books in order and eventually be able to borrow again for economic development, health, education and social programs, rather than simply to repay existing loans.
US President George Bush had signalled his willingness to go along with writing off the debts in principle, but the US and Britain had very different approaches to how such a plan would work.
The compromise they worked out in negotiations in Washington and London over the past several days gave the White House much of what it wanted, but also handed Tony Blair a timely political lift four weeks before a scheduled summit meeting of leaders of the Group of 8 nations, of which Blair is the current chairman.
“Yes, we have reached an agreement spelling out what President Bush and the prime minister outlined the other day in Washington,” the Times quoted the official as saying , said the official, referring to talks this week between the leaders.
The debt relief negotiations had been bogged down for months over which of two possible methods should be used to eliminate the debt.
One approach, favoured by Britain, was for the rich nations to take over responsibility for repaying the debts. The second method, favoured by the US, was for the loans to be written off entirely by the lenders.
In the end, Britain agreed to the American approach with a promise from the US to provide additional money to the lenders to make up for the assets they were writing off, the Times said.
The second issue was whether to sell some of the International Monetary Fund’s gold reserves to help pay off the loans owed to the fund, the Times said.
The US objected to any gold sales, saying it would drive down the price of gold on the open market, hurting, among others, American gold producers. The compromise was to draw, in part, on the proceeds earned by the monetary fund from sales of gold in the 1990’s, according to the official.
In theory, the deal would free the 18 countries from making $1bn (€18.6m) in interest payments each year to the World Bank, the IMF and other international lenders like the African Development Bank.
In practice, they had not been making the payments, leaving them mired in debt and unable to fully engage in the global economy.
Eventually the program can be extended to at least nine other countries with others sure to press for similar treatment.
The 18 countries eligible for debt relief are: Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia.
