IMF guarantees to cut debt burden of poor nations

Plans to reduce the burden of debt repayments on some of the world's poorest nations would go ahead as soon as possible, the International Monetary Fund said yesterday. Michel Camdessus, the IMF's managing director, said: "This is a done deal. There is a strong desire to go ahead with one of the most promising initiatives the IMF, together with the World Bank, has ever taken."

Despite Mr Camdessus's confidence, there was still uncertainty yesterday about how the initiative will be financed. According to the IMF, a four- year gap in the funds available for its contribution, a hole of about $1.8bn from 2000 to 2004, will be met partly by additional contributions from individual member countries.

If that proved insufficient, the IMF would consider selling 5 million ounces of its gold reserves and using the interest revenues on investment of the profits.

However, Robert Rubin, the US Treasury secretary, said the Administration would only discuss an additional American contribution if the gold sale went ahead. "At the time a decision is made to sell gold, we would be prepared to discuss with Congress the possibility of making a bilateral contribution," he said.

Germany and Switzerland have been steadfastly opposed to the sale of any of the IMF's gold reserves. Mr Rubin said the US supported proposals for the Paris Club - the individual governments owed money by developing countries - to increase its contribution to debt relief by writing off up to 80 per cent of debt owed, up from the current 67 per cent concession.

Subject to negotiations, the IMF and World Bank are likely to contribute about $2bn each to the initiative, with the balance coming from the Paris Club members. Nevertheless, all parties to the initiative agreed that financing details would be ironed out during next week's annual meeting of the IMF and World Bank.

The amount involved in the initiative is relatively small. It will relieve the debt burden by between $5.6bn and $7.7bn (pounds 3.59bn to pounds 4.94bn) for around 20 countries with a record of sound economic policies whose interest payments will always exceed their likely export earnings without some assistance.

The aid charities welcomed yesterday's announcements, but said the amount of relief was not enough. Oxfam spokesman Justin Forsyth said: "This could be the only break that some of the poorest countries get."

Oxfam unveiled figures showing that the proposals would save Uganda, one of the likeliest beneficiaries, about $80m a year for three years. Although a small amount of money, it would pay for improved healthcare, sanitation and teaching materials for millions of people.

However, Mozambique, another candidate for the extra assistance, has estimated that it will trim its annual interest payments from $191m in 1997 to about $172m in 2004, a saving of only $19m a year which would leave interest payments at more than twice their 1990-1995 average.

Mr Camdessus also confirmed yesterday that the IMF would seek an increase in its financial resources through an increase in member countries' quotas, which would preferably be doubled to nearly $390bn.

In parallel, the IMF is to discuss allocating Special Drawing Rights - holdings of its own currency - to countries which have become members since the last allocation in 1981.