UK pushing for Africa debt plan

The UK Chancellor Gordon Brown has put forward a bold plan to tackle poverty in Africa ahead of the G8 Summit of rich countries in Scotland next month.

He called for a doubling of European aid by 2010 and 100% debt relief, as well as an end to many trade subsidies.

But the plan is facing opposition in the US - and particularly from President George W Bush.

Mr Bush's stance sets up a possible clash with UK Prime Minister Tony Blair, due in Washington next week.

Mr Bush said on Wednesday that a key part of the plan did not fit with the US budget process.

The UK is pushing hard for major debt relief and a doubling of aid to Africa, and Chancellor Gordon Brown laid out a set of ambitious plans on Friday.

The UK has said that 2005 is a vital year for Africa, and argues that without significantly more money the United Nations' Millennium Goal of halving world poverty by 2015 will be impossible to meet.

  The UK is one of six European nations who have pledged to increase their aid target to 0.7% of GDP by that year, a figure which only five countries have managed to reach so far.

  However the US has said that the target is not a realistic one for it to work towards.

  US Treasury spokesman Tony Fratto told BBC's Newsnight programme: "The problem at looking at targets of 0.7% of GDP is that when people focus on numbers like that they don't know what they are talking about in nominal terms.

  "They don't know how much money is available and how much money is in the pipeline."

  'Doesn't fit'
Speaking in Edinburgh, Mr Brown said he would present the new British proposals to the leaders of the G8 summit next month, to the European Union, and the UN.

  As well as 100% debt relief, Mr Brown wants to set up an International Finance Facility (IFF) to double development aid to Africa in order to pay for education and medical programmes like mass immunisation.

   BROWN'S FOUR-POINT PLAN FOR AFRICA   100% debt relief to pay for education and health Launch International Finance Facility for Immunisation Large increase in direct development aid, doubling of aid from European countries Removal of export subsidies and all trade-distorting support to agriculture, which work against producers in the developing world Source: Chancellor Gordon Brown, 3 June speech

He also said that the EU would double its own aid to $80bn a year by 2010.

  But the US remains concerned that the UK is proposing that the debt plans should be financed in part by selling gold reserves held by the International Monetary Fund (IMF).

  A surge in the price of gold has boosted the value of the reserve, and the UK wants to use that extra cash.

  The US - along with some other countries including Japan, Germany and Italy - has never been keen on the idea of selling IMF gold.

  Washington has also raised questions over the IFF, which would allow developing countries to borrow against future aid pledges.

  Mr Bush said on Wednesday that the IFF for Africa "doesn't fit our budgetary process".

  The US has already pledged to increase development aid through its own Millennium Challenge Account, but little of the money has been spent so far.

  Getting closer
Analysts say the war in Iraq and its related costs have pushed Africa off the US agenda, and think a change in priorities is unlikely.

  "What the UK is proposing is not a cost-free policy," said Marina Ottoway, a senior associate at Carnegie Endowment in Washington. "Africa has not really had much of a constituency in the US."

According to Reuters, UK government sources have been talking about pressing ahead even without US involvement.

  Even that may prove difficult, Ms Ottoway explained, since agreements with the World Bank and International Monetary Fund are multilateral and any changes would therefore require US backing.

  Similar strictures apply to the trade agreements, and the European Union is unlikely to drop subsidies unless the US does the same, she said.

  Mr Brown played down reports of a rift or stand-off between the UK and the US.

  "In my talks over the last few months, but particularly over the last day or two, with the US Treasury Secretary, we believe that there is common ground on securing that debt relief," he explained.

  "We believe it is going to be possible to reach an agreement on debt relief."
  "This is not a time for timidity nor a time to fear reaching too high."

European Union to double aid to Africa by 2010

The East African - 2005-06-02

NAIROBI: British Prime Minister Tony Blair got the agreement he wanted on a massive new European Union aid package for sub Saharan Africa last week but questions still remain as to whether the United States and Japan will back the proposals.

  Six weeks ahead of the critical G8 summit at Gleneagles, the EU as a whole has committed itself to double its aid programme to Africa by 2010 with an additional promise to reach the UN goal of 0.7 per cent of GNP being spent on aid by 2015. Total aid to developing countries, including Africa, will rise from $40 billion this year to $80 billion by 2010.

  It is undoubtedly a coup for Mr Blair, who has worked tirelessly since being re-elected to get Africa back at the centre of international attention. However, problems remain particularly with regard to the other G8 members.

  Although Germany and Italy have signed up to the aid pledge, they have warned they may not be able to deliver. Both the German and Italian governments say that their priorities are more in eastern and central Europe and warn they do not have the budget, with a stagnating GDP, to commit to both.

  The United States only spends 0.16 per cent of its GNP on aid although Washington insists it bears its share of international burdens in other ways.

  But Republican hardliners are said to be set against any proposals to massively increase the aid budget arguing that development should come more from the private sector.

  The Americans are also sceptical about the effectiveness of aid and, like the Germans and Japanese, will want concrete realistic proposals in place to tackle the issue of corruption within African governments to ensure that any new aid is not wasted.

  Some UK aid agencies were delighted with the news last week with Oxfam saying the EU pledge was "a very generous deal that lays down the gauntlet to the United States and Japan. Others doubt this.

  The issue was big news in the UK and some other EU countries but hardly figured at all on the US networks or in Japan. Even within sub Saharan Africa, the news coverage was muted.

  Christian Aid believes strongly that development assistance alone will not be enough.

  "If Gordon Brown thinks doubling aid will end poverty, he has been reading the wrong literature," a spokesman said.

  A deal on debt is also possible but there is still concern in a number of western countries at who is eligible and the consequences for African countries on future loans.

  Japan, in particular, is sceptical about the merits of debt cancellation. Moreover, while the US is likely to agree a write-off of debts to the World Bank and the African Development Bank, it has not pledged to support the same for the IMF.

  Washington wants the money used to write off debt to come off new aid pledges while Britain is pushing for this to be in addition. The biggest arguments at Gleneagles are likely to be over trade with the US and France still blocking progress on proposals to end subsidies on cotton and sugar production along with other trade distortions.

  There is also exasperation in London at Washington's strategy of bypassing the World Trade Organisation (WTO) and agreeing bilateral deals with developing countries.

  The US has little sympathy with Britain's view that poor countries should not be forced to open their markets in return for maintaining their existing preferential access to the EU and in some cases the US markets.

  The British government remains bullish about the prospects of a good G8 summit with Development Secretary Hilary Benn saying the EU deal "sends a powerful message to the world," and was "a major breakthrough in the fight against international poverty."

  Paul Redfern
  Source: ------
Debt relief must be better tailored - IMF chief economist Reuters, 25 May 2005

WASHINGTON (Reuters) - The International Monetary Fund's top economist on Wednesday criticized debt relief proposals for poor countries as being "one size fits all" and said they should be tailored to the situations of individual countries.

  In commentary in the IMF's Finance and Development publication, Raghuram Rajan said outright debt relief proposed by some Group of Seven rich countries were not suitable for all countries and should be better crafted.

  "One-size-fits-all proposals, while politically more convenient, are unlikely to benefit recipient countries as much as proposals that tie debt relief and additional aid to a country's specific situation," he said.

  His comments come as G7 members Britain, the United States, Italy, Germany, Canada, France and Japan focus on reaching a deal to free the world's poorest countries of their excessive debt burdens.

  The United States, France and Britain have presented different proposals for providing 100 percent debt relief for poor countries, but are haggling over the best way to do it.

  The U.S. has proposed increasing grant handouts, Britain has called for an International Finance Facility that would double cash for developing countries and the sale of some of the IMF's gold stocks, while France has made a case for a tax on air travel to finance more aid.

  Rajan said the "one size fits all flavor" of the debt relief proposals would avoid politicking by recipient countries but would not necessarily resolve the problems.

  Without naming any countries he may have in mind, Rajan argues that debt relief makes sense if it encourages lending from private foreign creditors and there are incentives for governments to use the resources well.

  "Private investors may be unwilling to lend to a highly indebted country for fear that the country will be unable to lend, because even the worst debtor can be trusted to service small amounts of debt," Rajan said.

  "Thus, official creditors may be able to expand a country's access to private resources through debt relief," he added.

  But if countries are irresponsible, they could build up debt again and "game" the system to get further debt relief leading to donor "forgiveness fatigue", he added.

  Rajan suggested that some limits on borrowing after debt relief may be needed.

  If countries are corrupt, Rajan said no debt forgiveness and no additional aid is best, and aid should be distributed directly to non-governmental organizations.
  © Reuters 2005. All rights reserved.