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Debt Cut Is Set for Poorest Nations

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In Kenya, which does not qualify under the program, a senior official voiced a complaint commonly heard about debt relief plans -- that they reward borrowers who fail to honor their obligations at the expense of other debtors. "Those faithful in servicing their debt like Kenya are being ignored," Kenyan Planning and National Development Minister Peter Anyang Nyongo told Reuters.

An important breakthrough toward the accord came in the last few days when U.S. and British policymakers reached a compromise after a meeting Tuesday in Washington between President Bush and Prime Minister Tony Blair.

Up to that point, Washington and London had been divided over how to handle the debts owed to the World Bank, IMF and African Development Bank, which the rich nations control through their dominant voting power on the institutions' boards. U.S. officials favored an approach that would essentially pay for debt cancellation out of the resources of the lending agencies. The British, fearful of undermining the financial strength of those institutions, favored a plan by which rich countries would assume the burden of making the debt payments owed by the poor nations.

The deal announced yesterday struck middle ground. A communique issued by the G-8 said donor countries would commit to providing "additional contributions" to the World Bank and African Development Bank "to offset dollar for dollar the foregone principal and interest of the debt cancelled," with the new contributions apportioned in the same manner as existing contributions.

Even after the Americans and British had struck an alliance, they had to overcome objections from other members of the G-8, including Germany, which has long taken a dim view of blanket debt-forgiveness schemes. Other members of the group are Japan, France, Italy, Canada and Russia.

Debt forgiveness plans have been announced before with great fanfare, but they have often fallen far short of the hoped-for results. Some critics contend this is because the countries that benefit are hopelessly corrupt, while others contend that the terms have simply been too stingy.

In the 1980s and early 1990s, rich countries forgave much of the debt owed to them directly by poor countries under successively more generous plans.

Since those deals still left countries in debt to the IMF and World Bank, a new program was launched in 1996 to reduce those obligations and it was expanded in 1999. Yesterday's plan is aimed at wiping the slate clean, at least for the countries that qualify, once and for all.


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