G7 DEBT REDUCTION PLAN FACES BIG FINANCING GAP.
Rich industrial nations will still have to plug a large gap in the financing of their new plan to ease poor countries' debt even if the IMF sells a tenth of its gold reserves, Reuters reports international financial officials said yesterday. Speaking at a conference in London organized by the Commonwealth, they said the IMF, the World Bank, and other agencies faced serious difficulties footing their share of the debt-reduction initiative agreed by the G7 nations and Russia at Cologne in June.
The funding gap need not threaten the Cologne plan, which aims to wipe out up to $70 billion of loans owed by 33 countries, but it means governments will soon have to dig deep into their pockets if they want the financing details wrapped up at next month's annual meeting of the IMF and World Bank. "There is a major challenge to us ahead of the annual meetings to secure full funding," said Anthony Boote of the IMF's official financing operations division.
The G7 controversially endorsed plans to sell up to 10 million ounces of gold from the IMF's 103 million ounce stockpile to help finance the Fund's share of the scheme, which will cost an estimated $27.5 billion in total. But Boote said, "Even if there were 10 million ounces of gold sales, there would still be a shortage of funds (for the IMF's share) of about $1 billion."
David Peretz, a senior World Bank official, said the Bank could theoretically fund its $5 billion share of the bill by siphoning off some of its annual profits or by switching money from its IDA soft-loan window. "But in either case that would simply mean diverting money that would have gone to poor countries," Peretz said. "It would be one set of poor countries paying for other poor countries."
The cash-strapped AfDB is probably in the direst straits, says the story. Andrew Mwaba, the AfDB?s principal economist, said it faced a potential financing gap of $1.4 billion if all African countries on the Cologne list qualified for debt reduction. Peretz said it was clear from a meeting the World Bank had held with the AfDB and other multilateral development banks last month that most could not come up with the cash themselves. "There's a whole chunk of money that will simply have to come from donors to help those institutions," he said. "If that doesn't happen, there's a severe danger that the initiative will not go ahead."
Peretz said rich states should take their cue from the UK, which has pledged $100 million to help plug the financing gap. "That's a splendid act and I hope other governments will follow. We're hopeful, but we haven't made progress," he said.
Meanwhile, experts who deliberated for two days last week on the Highly Indebted Poor Countries (HIPC) debt relief initiative have reached consensus on how the key components of the initiative could be reformed, the Pan-African News Agency reports the UN Economic Commission for Africa said on Monday. At a seminar on debt relief and poverty reduction co-sponsored by the commission and the World Bank, participants agreed that "debt relief must be firmly linked to a broader approach to long-term poverty reduction and economic growth," the commission said in a statement.