U.S. Considers Forgiving Poor Nations' Debts

The Bush administration is considering throwing its weight behind a British-backed plan that would eliminate the debt owed by some of the world's poorest countries to international lending institutions, according to people familiar with the matter.

The initiative would significantly deepen the debt relief available to poor countries under a program launched during the 1990s. It may help Washington obtain broad backing for its efforts to forgive most of Iraq's debt, because proposals to grant debt relief to Baghdad have raised questions about why an oil-rich country should get generous terms while poorer nations remain financially strapped.

The initiative is still being debated within the administration, and although advocates had hoped it might get a major push forward at this week's Group of Eight summit meeting in Sea Island, Ga., that is unlikely, administration officials said.

Some critics of the initiative argue that it is unwise to write off poor countries' debts entirely, because the countries' governments may have less incentive to adopt sensible economic policies if they assume their obligations will be forgiven eventually. Another problem is the cost, because it is far from clear that the administration is willing to commit the billions of dollars that would have to be spent in coming years to underwrite the write-off of debt by the World Bank and other international lenders.

Still, the plan has powerful boosters -- top officials in the U.S. and British treasury departments. The British government has been a leading champion of increasing aid and debt relief, and for Prime Minister Tony Blair, getting American backing for the plan would enable him to show a payoff for the support he gave to President Bush on the Iraq issue.

Officials from both governments were extremely guarded in discussing the plan and refused to be quoted by name, citing the fluid nature of the negotiations. Tony Fratto, a Treasury spokesman, declined to comment. A White House official said, "There are a lot of ideas in the U.S. government and in the international community on this issue, but we have not settled on an approach."

Under one option, reported by the British newspaper the Guardian yesterday, the debt owed to the International Monetary Fund, World Bank and other lenders by 27 countries in sub-Saharan Africa, Latin America and South Asia would be eliminated. About 10 more countries could become eligible for such relief; moreover, future World Bank aid to those countries would be given in the form of grants rather than loans.

A complete write-off would be considerably more generous than the terms that the 27 countries can currently get under the Highly Indebted Poor Countries initiative. The HIPC plan, which was launched in 1996 and expanded in 1999, is aimed at reducing the countries' obligations to a manageable level, defined as a certain multiple of their exports. The world's rich countries have financed much of the initiative by contributing to a trust fund used to pay the debts of the poor countries to the IMF and World Bank as they come due.

Debt-relief advocates who have been talking with officials in Washington and London about the proposal voiced hope that it would get a rhetorical endorsement at the summit. They have been prodding the summiteers to provide at least enough funding to extend the existing HIPC program.

"This summit can and should keep old promises on debt relief," said Jamie Drummond, executive director of DATA, a group founded by the rock star Bono to support aid, debt relief and trade concessions for Africa. "But the proposal of 100 percent relief is something more -- a historic breakthrough, a lasting exit from the shackles of debt for the poorest nations."