Debt Relief Plan Could Fall Apart

WASHINGTON – The Bush administration warned Tuesday that a plan to wipe out $40 billion worth of debt held by poor countries could come unglued if attempts are made to significantly change it.

Countries that are members of the World Bank (search), the IMF (search) as well as others have been talking about how to implement a debt cancellation deal announced with much fanfare in July when leaders of the world's eight major industrial countries gathered in Gleneagles, Scotland.

The debate is likely to figure prominently at the annual meetings Sept. 24-25 of the 184-nation World Bank and IMF.

The agreement would initially cancel an estimated $40 billion worth of debt payments that 18 poor countries -- most in Africa -- owe to international lenders such as the World Bank and IMF.

Disputes center around a number of issues, including whether all of the money that will be lost through debt cancellation will be made up fully by the rich countries and how long the rich countries will need to make payments.

The Netherlands and Scandinavian countries, for instance, want to make sure that any debt deal doesn't reduce monies available to the World Bank and other international lending institutions to provide aid, World Bank President Paul Wolfowitz (search) said in a recent interview with The Associated Press.

Meanwhile, some anti-poverty and other groups want the debt relief expanded to cover 60 plus poor countries. The agreement initially covers 18 countries and as many as 20 others could be eligible if they meet certain conditions.

If there are "attempts to significantly add to the number of eligible countries or the financing requirements beyond the original Group of Eight (search) deal, then the deal would be in jeopardy," warned Treasury Department spokesman Tony Fratto. "Attempts to alter the deal at this point can make it very, very difficult to move forward and get it done."

Fratto insists that the United States -- a champion of fully erasing poor countries debts -- wants to see the accord from the Group of Eight nations implemented. Group of Eight countries are the United States, Japan, Germany, France, Britain, Italy, Canada and Russia.

Their initiative would cost billions of dollars spread over decades. Rich countries have pledged to cover the money that would be lost over the next three years by the World Bank's International Development Association, which makes interest-free loans to the world's poorest countries.

After that three-year period, though, the plan is fluid. Rich countries have promised to make sure debt cancellation is paid for in the years ahead but details as to exactly how that would work and how much countries would have to pay haven't been nailed down.

An internal World Bank paper raised the concern that the debt proposal "could reduce IDA's financial capacity significantly and may fail to deliver additional resources to poor countries."

"There are a lot of tensions," said Max Lawson, policy adviser to Oxfam, an international aid group that supports debt cancellation to impoverished countries. Lawson said he's sympathetic to the notion that the rich countries should have a specific, binding commitment to pay for debt cancellation in the decades ahead and to make sure that overall resources of the World Bank and other lending institutions aren't diminished.

"We don't think the deal will fall apart completely. But there's the possibility that it could be weakened or watered down," Lawson said.

Oxfam would like to see the debt agreement include more countries, Lawson said. The group doesn't want additional eligibility requirements put on poor countries, he said.

Wolfowitz, in an interview with the AP last week, acknowledged there are thorny sticking points that need to be resolved but he was cautiously optimistic that an agreement would be adopted at the upcoming World Bank and IMF annual meetings.

IMF spokesman Thomas Dawson, responding to a reporter's question about the debt debate on Tuesday, downplayed the threat that the deal could come unhinged.

"We are on track" to consider the proposal during the annual meetings, he said, adding that it wasn't his sense that "anything is falling apart."