Donor differences hold up aid deal

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Finance ministers of G7, the club of seven most powerful industrial countries, met here yesterday to discuss how to pep up the flagging European economy, and advance an International Monetary Fund/World Bank plan to increase debt relief for the poorest nations.

At issue in the discussions, held on the sidelines of annual spring sessions of the two agencies are proposals - strongly pressed by Britain - to channel $7bn (pounds 4.6bn) to $8bn to from eight to 20 countries, mostly in sub-Saharan Africa, and all crushed under servicing payments so high they have no hope of running down the original debt.

The talks were expected to generate agreement that something must be done. However, the devil, as always, lay in the detail: over how much of the new aid should come from the IMF and other institutions, and how much individually from G7 and other wealthy developed countries, and the role to be played by the Enhanced Structural Adjustment Facility, the Fund's existing facility for the neediest countries.

Of the $8bn, the IMF and other multilateral institutions want to limit their contribution to about a third. But that presupposes a willingness by the "Paris Club" of rich creditor countries to find the rest. Although recognising the need for action, they say they cannot put up as much as the IMF wants.

Complicating matters further, the G7 is also split on the call by Kenneth Clarke, the Chancellor, for the Fund to sell off a small portion of its $40bn (pounds 26bn) gold stock to raise the money. While Britain and the US back the idea, Germany, France and Japan are opposed. Such a step would weaken the Fund's financial base and "send the wrong signal," Germany's Finance Minister, Theo Waigel, repeated this weekend.

The wrangling has dismayed relief agencies, which argue that the plight of the poorest countries has long since reached calamity proportions. But yesterday G7 officials seemed confident the outline of a deal can be readied at the annual G7 summit in Lyons in summer, so that a final package can be approved at the Fund's annual meeting here in October.

Despite some differences over the recent strengthening of the dollar, all is relatively calm on the currency front. The Clinton administration does not want to see the US currency advance much further, for fear of weakening exports. But some European countries, anxious to boost their own foreign markets to help revive their domestic economies, would welcome a depreciation of their currencies against the dollar.