JAPAN AND US RESIST UK MOVES ON DEBT RELIEF By Robert Chote, Economics Editor
The Group of Seven leading industrial countries is struggling to agree a new debt-relief package for poor countries, with Japan fiercely resisting any proposals for much greater generosity.
The UK is at the forefront of those urging deeper and faster debt relief. British government officials said they were "quietly confident" of a successful outcome but the US - among others - believes the UK proposals to be prohibitively expensive.
The G7 - which also includes Canada, Germany, France and Italy - has been urged by smaller countries and the World Bank to back any new debt-relief proposals with money to pay for them. They fear the G7 will claim the political credit for any initiative, while leaving others to pick up the bill.
G7 finance ministers are supposed to finalise their package in Frankfurt on Saturday, before the Cologne heads-of-government summit a week later. But officials say the shape of any deal remains unclear. "The communiqué is written," says one official. "But all the numbers are still in brackets. It's a poker game."
Debt campaign groups are already expressing disappointment at the G7's efforts. Jubilee 2000, which has mobilised high-profile support from entertainers for events such as last weekend's Debt Wish Live comedy show in London, predicts that the outcome will provide less than $3 (£2) per person each year.
The existing "highly indebted poor country" (HIPC) debt initiative is thought inadequate by governments and campaigners alike. The estimates of "sustainable" debt on which it was based look over-optimistic given the weakness of economic growth and commodity prices.
The existing scheme aims to reduce ratios of external debt to exports to around 200 per cent. For very open economies, in which debt imposes a significant burden on the public finances, the target is a ratio of debt to government revenue of 280 per cent.
However, this applies only to countries which export at least 40 per cent of GDP and where at least 20 per cent of GDP is raised in government revenue.
There is general agreement that the debt-to-export target should be reduced. The UK, US, Canada, and Germany favour a figure of 150 per cent. The others are wary of such a big reduction, with Japan reluctant to go below 170 per cent.
The US and UK differ, however, on the appropriate targets for the fiscal burden of debt. The UK wants a target of 200 per cent for debt-to-government revenue. It would abolish the exports-to-GDP hurdle and demand only that governments collect 10 per cent of GDP in revenue.
The US believes this would be much too expensive. It favours a 250 per cent debt-to-revenue target, with the qualification hurdles reduced to 30 per cent for exports-to-GDP and 15 per cent for revenue-to-GDP.
Another point of contention is the policy track record that countries have to establish to qualify for relief. Canada, Germany and the UK would cut the current six-year requirement but the US would prefer to offer greater interim assistance during that period. There is also growing enthusiasm for providing "floating" relief when specified policy targets are hit, rather than on a pre-determined timescale.