IMF postpones decision on debt

A plan to help Third World countries with interest payments is facing opposition
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The Independent Online
Hopes that the world's poorest countries will gain relief from their crushing burden of international debt faded at the weekend after a meeting of the International Monetary Fund's board postponed a decision on how to finance its contribution to a proposed debt reduction plan, writes Diane Coyle.

Clare Short, Labour's overseas development spokesman, said yesterday that the forthcoming annual meetings of the IMF and World Bank could prove the last chance to make progress on lifting the burden of interest payments weighing down the Third World. "Britain is a significant power on the board of the IMF and must use this considerable influence to push through real initiatives to relieve debt," she said. The IMF and World Bank, she added, spent billions of pounds of taxpayers' money. "We have a right to know how this money is spent and why there has been such a failure to reduce world poverty."

A spokeswoman for Oxfam in Washington said it was essential to take advantage of the greatest opportunity there had been for many years to reduce the burden of debt.

Kenneth Clarke, Chancellor of the Exchequer, has been at the forefront of the drive to develop a $5.6bn-$7.7bn (pounds 3.6bn-pounds 5bn) six-year plan to cut payments by developing countries on their debt to international institutions. He has won wide acceptance for his suggestion that the IMF should sell a small part of its gold reserves and use the income from reinvesting the proceeds for debt relief.

Earlier this month the plan took a significant step forward when the IMF supported the idea for the first time. Until then the fund had been unwilling to agree to the principle of writing off any of the debt it is owed by poor nations.

However, the German government has implacably opposed this proposal even though Chancellor Helmut Kohl supported a Group of Seven statement earlier this summer on the urgent need for a solution to the debt problem.

If Germany blocks the move at next month's annual meetings in Washington, the web of plans to reduce Third World debt to individual governments is also likely to collapse.

The "Paris Club" of countries owed money by developing countries is due to discuss next week whether to agree to reduce bilateral debt by up to 90 per cent. The problem is also high on the agenda for discussion at the Commonwealth Finance Ministers meeting in Bermuda next week.

Commonwealth countries, led by Secretary General Chief Emeka Anyaoku, are lobbying urgently ahead of the annual IMF and World Bank jamboree. Discussions at the traditionally glittering occasion, characterised by lavish parties for the world's bankers and finance officials, could prove to be turbulent.