G8 Move Closer to Poverty Deal – Remain Split in Designating Aid

Britain, leading the Group of Eight rich nations this year, is determined to eradicate poverty in Africa and compromise debt relief and aid for the continent by next month, when G8 leaders will meet in Gleneagles, Scotland.

However, finance ministers are still disagreeing on how countries should qualify for debt relief. Germany and Japan still need to be convinced of the merits of a proposal that will relieve US$40 billion of debts owed by the poorest nations in the world.

As ministers debated on Saturday, Germany’s deputy finance minister Caio Koch-Weser told reporters: "I am a little more optimistic, but no agreement yet."

At the prospects for a deal that will immediately provide debt relief for 18 of poorest countries in the world, Britain remains optimistic. However, according to officials, the G8 nations are divided on different principles on how to decide which countries should be helped.

Japan says blanket forgiveness would create a moral hazard, whereas Germany wants debt relief for the countries to be considered through a case-by-case basis, and that countries should show they deserve the debt relief by improving their governance and fixing the corruption in the country.

Meanwhile, financial ministers will also look into their own economic problems. Slow growth in Europe and Japan, record deficits in the United States and tension over China’s currency policy will be reviewed.

U.S. Treasury Secretary John Snow appealed to China’s Jin Renqing on Friday to demand the yuan’s exchange rate peg to the U.S. dollar.

British Chancellor Gordon Brown said each continent must play its role in nurturing growth as high oil prices challenge the world. "We will be looking at how Europe can do more economic structural reform, America can deal with the issues they know they have to deal with -- their twin deficits, Japan and its financial sector reform."

No change is expected in the rich countries stance on foreign exchange markets. The call for more flexibility in exchange rates is likely to be called.

According to charities, any deal will not achieve the United Nations targets to reduce world poverty by half, in which 62 countries need debt cancellation..

"We certainly see it as a step forward but according to our analysis it still would provide 10 percent of the debt relief that is needed to significantly reduce poverty by 2015," said Romilly Greenhill of ActionAid on Thursday.

14 of the 18 countries which will benefit from debt relief will be from sub-Saharan Africa. Millions die from poverty and disease every year.

British Treasury officials say there were potentially 38 nations, mostly African, that might benefit for total debt relief of US$55 billion. Nine more countries might qualify within 12-18 months.

However, Britain’s other main proposal to double to aid to Africa is not likely to make any progress at this meeting.

Others are urging a million people to turn up in Gleneagles next month to demand a deal on aid and debt relief for impoverished Africa.