The initiative will not at first be financed by the sale of some IMF gold, as Mr Clarke had advocated. But the initial financing was agreed during theweekend and the $5.6bn (pounds 3.6bn) package received its final approval at the annual meeting of the International Monetary Fund yesterday.
The Chancellor also backed a proposal by Renato Ruggiero, head of the World Trade Organisation, to take the relief of poverty in developing countries to its next stage by abolishing tariffs on their exports. He said: "We need to give poor countries the chance to grow through access to world markets."
However, the trade liberalisation proposals could prove controversial as at least two of the G7 countries, France and the US, lean towards protecting their domestic industries from Third World competition. Those two countries have been pushing for international trade agreements to incorporate minimum labour standards, which would close western markets to goods made by children or by forced labour.
Negotiations on the debt reduction plan will start with Uganda, the first beneficiary. Officials said yesterday they hoped to have details agreed by Christmas and the debt reduction under way by 1998. Uganda's interest payments will be reduced by some $80m a year. Its record of sound economic policies has earned it a place at the head of the queue.
Other countries could have to wait up to six years. The initiative is meant to rescue extremely poor countries from the trap of debt so big that their interest payments are greater than they could ever pay. About 40 borrowers, mainly African, are in this position, and about half could be eligible for relief from the new debt initiative. They include Burundi, Cote D'Ivoire, Ethiopia, Guyana, Mozambique and Nicaragua.
The aid charities welcomed the acceptance of the debt relief plan but expressed concern that it would be applied too rigidly. Justin Forsyth, a spokesman for Oxfam International, said: "This is an historic breakthrough that offers real hope and opportunity. But the extent to which the hopes are realised depends on how quickly countries now start to get the debt relief."
Mr Clarke said the rules for eligibility must be applied with common sense and flexibility. He said lenders had to be sensible. "In the past, too many of the richer countries were prepared to lend to poor, already indebted countries for projects that did not add to their capacity to grow," he said.
In a separate meeting of the IMF's Interim Committee, finance ministers issued a statement stressing the importance of sound fiscal and monetary policies and structural reform in a multi-point statement dubbed the "Eleven Commandments" by Michel Camdessus, the IMFU's managing director. It placed emphasis on "achieving budget balance and strengthened fiscal discipline in a multi-year framework".