Bush administration officials are advancing a plan to cancel billions of dollars in debt owed by some of the world's poorest countries, a move that could boost the United States' image abroad but which institutions like the World Bank fear could leave them strapped for cash.
The plan, disclosed by members of aid groups and government officials, would dramatically increase previous debt relief programs for at least 27 poor nations such as Uganda, Bolivia and Ethiopia.
The Treasury Department, which is putting the plan forward for discussion at a meeting in Paris this week, contends that the current approach has been too slow and piecemeal to truly free those nations from the burden of repaying money borrowed from the World Bank, International Monetary Fund and other global lenders. The Treasury is also proposing that for very poor countries, all future IMF and World Bank assistance come in the form of grants rather than loans.
The initiative, which would require broad support from the 184 member nations of the IMF and World Bank to be implemented, is getting a frosty reception from the governments of other rich countries and from the staffs of the lending institutions. Some critics oppose such drastic debt relief for certain countries as unwise and unfair to other indebted nations that don't qualify. Other opponents contend that the administration is trying to accomplish debt relief on the cheap, without imposing any direct cost on U.S. taxpayers, by fobbing off the cost on institutions like the World Bank, whose aid-giving ability may as a result be curtailed.
No matter whether the proposal is enacted, its impact, both political and economic, could be significant. It may help Washington secure support for its efforts to forgive most of Iraq's debt, because nations such as France have rejected granting more generous terms to Baghdad than to other, poorer nations.
Moreover, if, as some administration officials hope, President Bush takes a strong position on the emotionally charged debt issue, he may burnish his image both at home and overseas as a "compassionate conservative," winning plaudits from groups normally on the liberal end of the spectrum.
Marie Clarke, national coordinator for the Jubilee USA Network, a leading advocate of Third World debt forgiveness, said in a statement yesterday that her group was "very encouraged to hear that the U.S. Treasury Department is apparently pushing for full multilateral debt cancellation."
Officials from several government agencies confirmed the basic elements of the Treasury plan. They spoke only on condition that they be granted anonymity because of the sensitivity of the proposal. A Treasury spokesman, Tony Fratto, who was in Paris yesterday with John B. Taylor, the undersecretary for international affairs, declined to comment.
Clarke noted that the Treasury plan for 100 percent debt forgiveness first surfaced in June during the Group of Eight summit in Georgia. At that time, it was opposed by a number of U.S. policymakers from outside Treasury, but sources said that since then Treasury officials have garnered greater backing from other elements of the administration.
"We had heard from the White House . . . that one of their big concerns was whether they would receive applause for taking this kind of action," Clarke said, adding that Jubilee USA has "been working around the country" with many religious groups to galvanize enthusiasm for the plan.
A complete debt write-off would be much more generous than the terms currently being granted to 27 countries under the Heavily 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, set as a multiple of their exports.
Currently, HIPC is saving the 27 countries about $900 million a year in debt payments, according to figures compiled by DATA, the group started by the Irish rock star Bono to advocate for Africa. But those countries are still paying about $800 million annually.
The IMF and World Bank have acknowledged that the HIPC program has failed to reduce most poor countries' debts to "sustainable" levels.
But even strong advocates of debt relief are worried that the Treasury plan would in effect reduce the help that poor countries get, particularly if the World Bank is unable to give as much aid as before. Sources said that the British government has strongly urged that an initiative like Treasury's should go forward only if rich nations somehow cover the cost of forgiving World Bank loans.
A spokeswoman for the British Treasury noted that in a July speech, Chancellor of the Exchequer Gordon Brown endorsed greater debt write-offs, but added: "To achieve this, let us accept that we need to develop a new financing vehicle."