LONDON – Britain and the United States have overcome their differences over debt relief, setting the stage Friday for a potentially historic agreement among G-8 (search) countries to cancel $15 billion owed by the world's poorest countries.
The proposal, negotiated earlier this week in Washington by British Prime Minister Tony Blair (search) and President Bush, followed a concession from the White House that money used to cancel debts must not come out of future aid, British officials said Friday.
London and Washington want the Group of Eight industrialized nations to cancel 100 percent of the debt that poor countries owe multilateral institutions such as the World Bank (search), the International Monetary Fund (search) and the African Development Bank (search).
The agreement, which will be discussed at a meeting of G8 finance ministers in London on Friday and Saturday, initially would cover 18 nations eligible for debt relief under the Heavily Indebted Poor Countries (search) initiative, including Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana and Mali.
Another nine countries are close to completing the targets for good governance set out under the initiative and would then qualify. Some 38 countries in total are participating in the HIPC program, launched by the World Bank and IMF in 1996.
Britain's finance minister said he is optimistic that G8 nations will back the British-American proposal.
"Much is still to be done, but I think there is a will to do this in a way that would see the biggest debt settlement the world has ever seen," said Chancellor of the Exchequer Gordon Brown.
Officials said the proposal could cancel about $15 billion in debts. Aid organizations estimate it could free up a total of $1 billion a year for the benefiting countries.
The deal will be put to finance ministers from Russia, Canada, Japan, France, Germany and Italy over dinner Friday and in further talks Saturday. They also must agree on how to pay for the initiative.
"Of course, much is to be discussed because you are talking about dozens of countries and billions in money ... but there is a will to come to an agreement," Brown told British Broadcasting Corp. radio.
Nations in sub-Saharan Africa alone owe some $68 billion to international bodies. Rich nations and aid agencies agree the debt must be relieved — as the crippling repayments eat up money that could be spent on developing health care, education and infrastructure.
But the international community has failed to agree on a way of tackling the problem.
Blair and Bush believe the multilateral institutions should simply scrap the debts. Rich nations would then provide extra money to the lenders to compensate for the assets written off and ensure future aid packages are not affected. Disagreements remain over how to fund the debt relief, however.
Britain has proposed that the IMF re-value or sell some of its massive gold reserves to raise cash for the debt write-off. Washington, worried about the impact on the gold bullion market, opposes that plan.
Support appeared strong from some countries for the proposal.
"I welcome the American-British proposal as a correct and important step," said Germany's development aid minister, Heidemarie Wieczorek-Zeul.
Canada Finance Minister Ralph Goodale said his country was prepared to assume its "full fair share of the cost responsibility for this."
"I am more optimistic going in to this meeting about an acceptable result than I have ever been," he added.
Italian Finance Minister Domenico Siniscalco said he was "very optimistic" of an agreement on debt relief, following a meeting Friday with U.S. Treasury Secretary John Snow.
Britain has made tackling poverty in Africa and the developing world a priority for its G-8 presidency and says the U.N.'s Millennium Development Goals of reducing poverty, hunger and disease affecting billions of people will not be met by 2015 without urgent action.
Blair's approach is three-pronged: increasing aid; eliminating debt; and removing export subsidies and other trade barriers that make it difficult for developing nations to compete.