US, Europe Avoid Rift on Development Aid

Top finance officials from the world’s seven wealthiest countries met in London Saturday amidst deadlock on how to combat global poverty. Despite a vibrant emotional appeal for action by former South African President Nelson Mandela, the Group of Seven remained deeply divided over the issue of increasing development aid for the world’s poorest countries.

Ministers met at the home of British Chancellor of the Exchequer Gordon Brown early Saturday after failing to reach common ground on third world development aid during a working dinner the previous night. Finance chiefs and central bankers from Britain, Canada, France, Germany, Italy, Japan and the United States had met Friday with Mandela who urged them to back a doubling in annual development assistance to 100 billion dollars and approve 100 percent debt cancellation for Africa.

"I urge you to act tonight, do not delay when poor people continue to suffer," Mandela said.

100 percent debt relief

After a marathon session, a widening rift between Europe and the US was thwarted in the final stage of discussion when Gordon Brown announced that finance ministers from the G7 had in fact for the first time expressed firm willingness to provide as much as 100 percent debt relief for the world’s poorest countries.

Finance chiefs from the G7 countries "agreed on a case-by-case analysis” of Heavily Indebted Poor Countries (HIPC) to provide as much as “100 percent multilateral debt relief." The HIPC initiative is a joint initiative of the World Bank and the International Monetary Fund that offers debt relief to the world’s most impoverished nations which agree to undertake economic reform.

"This is the first time as much as 100 percent debt relief has ever been detailed in a G7 communique," Brown told reporters at the end of a two-day meeting.

US-European differences

The last-minute expression of willingness came none too soon, as Europe and the US threatened to leave the G7 session in a deadlock over the issue. In earlier talks, according to German Secretary of State for Finance Caio Koch-Weser, "the Americans (were) in a completely different frame of mind from the Europeans."

US Undersecretary of the Treasury John Taylor said Friday an additional plan spearheaded by Britain to increase development assistance up to 100 billion dollars a year "doesn't work" for the United States. US officials have cited legal problems in connection with the plan, known as the International Finance Facility (IFF).

"For the United States it doesn't fit in to our budget process," Taylor said in a BBC radio interview on the fringes of G7 meeting. He said the US did not object to the British plan because of any suspicion about its soundness but simply because it requires governments to commit money for years ahead. US government rules mean spending can only be agreed a year at a time.

Britain, however, put on a brave face Saturday, with International Development Secretary Hilary Benn saying he believed a solution would be found, with or without the backing of the Americans, when G7 leaders plus Russia meet for a Group of Eight summit in Gleneagles, Scotland in July.

"You don't need everybody on board to launch the IFF," Benn told the BBC. "One way or the other, what is inconceivable is that the world will come to Gleneagles without having found ways of raising the additional money that we know is needed to save children's lives and to give developing countries the helping hand they need as they help themselves out of poverty," he said.

France and Germany launch initiative

France and Germany meanwhile agreed on the sidelines of the meeting to announce their own joint development plan to increase resources devoted to development financing in the world’s poorest countries.

Finance officials from the two countries said their proposal, which would be put to other European Union countries, would consist of an immunization program financed by a mechanism similar to the International Finance Facility (IFF) devised by Britain. Under the scheme, wealthy countries would guarantee bonds issued by poor nations to raise development funds.

A second measure in the French-German proposal could include "airline fuel taxation and charges on plane tickets," the statement said. "The proceeds of such a tax could help tackle the health challenges in the poorest countries, especially in Africa, in particular severe pandemics like AIDS and, importantly, later refinance the pilot IFF."