G7 offers no new debt relief

Social justice news
May 2005

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G7 offers no new debt relief
Campaigners for debt relief are disappointed that the latest meetings of the World Bank and International Monetary Fund (IMF) and G7 Finance Ministers have passed with no progress on debt relief. With most countries—including the United Kingdom, France, and the United States—having already written off their debts, the world's poorest countries' biggest creditors are now the World Bank and the IMF.

At the last G7 Finance Ministers' meeting, which took place in London earlier this year, the G7 agreed in principle to further cancellation of debts to the Bank and Fund. Since then, talks have reached deadlock.

The U.S. is still refusing to sell the IMF's gold reserves (some $41 billion) as a means of paying for debt relief, or to fund additional World Bank debt write offs. The IMF has released findings of a study which concluded that gold prices would not be jeopardised by the sale of some of its reserves. Nevertheless, the U.S. Treasury has opposed the move after vociferous lobbying by the Gold Council.

But the major stand off within the G7 has been over the writing-off of World Bank debts. At the beginning of the year, the UK launched a ten-year debt relief package that involves additional money being used to pay off some ten per cent of the debts owed to the World Bank's International Development Association (IDA) loan facility.

This proposal is supported by Canada and, outside the G7, by the Netherlands. But the U.S. opposes the policy—and is calling for the IDA to pay for its own debt write-offs.

In other words, cash strapped poor countries would not have to pay back their debts, but they would get equivalent reductions in new aid money. This would be of little benefit to heavily indebted poor countries who urgently need new resources for poverty reduction, according to an analysis from the UK's Catholic Agency for Overseas Development (CAFOD), a relief and development organization.

Some officials suspect there will be some compromise at the G8 Summit in Gleneagles—but only because the U.S. is not willing to move on the other agenda items of increased aid or Climate Change.

CAFOD Policy Analyst Henry Northover said, "For all of us campaigning to make poverty history, it is imperative that other G7 countries and large creditors are lobbied to agree on an aid package with new money."

For more information:
Debt: an overview from CAFOD

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