U.S. and Britain Agree on Relief for Poor Nations

ELIZABETH BECKER and RICHARD W. STEVENSON

New York Times

June 10, 2005

WASHINGTON, June 9 - The United States 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, a senior official involved in the negotiations said Thursday.

Treasury Secretary John W. Snow and his British counterpart, Gordon Brown, the chancellor of the exchequer, will present their proposal to a meeting of the finance ministers of seven of the Group of 8 industrial nations on Friday in London, the official said.

The plan would free 18 countries, most of which are in Africa, from any obligation to repay the estimated $16.7 billion they owe the international lenders, said the official, who requested 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.

Mr. Bush had signaled his willingness to go along with writing off the debts in principle, but the United States 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 Prime Minister Tony Blair of Britain a timely political lift four weeks before a scheduled summit meeting of leaders of the Group of 8 nations, of which Mr. 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," said the official, referring to talks this week between the leaders.

The agreement on debt cancellation is likely to be the only big issue at the coming Group of 8 summit meeting in Scotland on which the United States is in full accord with the other major industrial nations. The Group of 8 includes, in addition to the United States and Britain, France, Germany, Italy, Canada, Japan and Russia.

The White House has also rebuffed Mr. Blair's efforts to persuade the United States to move closer to the position of the other industrial nations on how to fight global warming.

Mr. Bush also has resisted calls by Mr. Blair for a doubling of direct governmental aid to Africa, saying the United States has already tripled aid to African countries in recent years and will provide more as those nations show they can use it effectively. And the administration has rejected the British proposal for creation of a new international body that would raise money for Africa by borrowing against pledges of future aid.

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, favored by Britain, was for the rich nations to take over responsibility for repaying the debts. The second method, favored by the United States, 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 United States to provide additional money to the lenders to make up for the assets they were writing off.

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 United States 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 $1 billion in interest payments each year to the World Bank, the I.M.F. 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.

Canceling the debt of third-world nations has been a rallying cry for activists for years, and Mr. Blair's government has been pressing for an agreement. Groups that had been seeking to build public pressure on aiding poor nations hailed the agreement, and used the occasion to seek even more aid to the third world.

"President Bush and Prime Minister Blair made great progress and Gordon Brown and John Snow agreed on an excellent proposal for debt cancellation for many of the poorest countries," said Jamie Drummond, of DATA, a lobbying group founded by Bono.

"It is no substitute for an overall plan on aid and trade at the G-8 summit, but this degree of cooperation should make a historic breakthrough more likely," Mr. Drummond said.

All of the countries eligible for debt relief have had to show that they have acted to improve governing, reduce corruption and pursue what the international lenders consider sound economic policies.

If the administration's position on the specifics of how to help the poorest nations is at odds with those its main allies, it agrees with them on the goal. Mr. Bush has pledged to channel more aid to developing nations that show they are working to establish stable, democratic governments with good economic policies.

On Monday, he is scheduled to meet at the White House with the leaders of five African countries that held elections last year. They are President Festus Mogae of Botswana, President John Kufour of Ghana, President Armando Guebuza of Mozambique, President Hifikepunye Pohamba of Namibia, and President Mamadou Tandja of Niger.

Mr. Bush has emphasized his view that free trade and private investment are more powerful tools for economic growth than government aid. Two of his senior aides are in Africa this week, studying health and economic development programs.

Paul Wolfowitz, the former deputy defense secretary who is the new president of the World Bank, said on Thursday that he would tell the finance ministers meeting in London that all the pieces are in place for helping Africa this year.

"My message will be I think that it really is important to find increased resources to give Africa so it can turn the corner now," he said.