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IMF panel backs debt-forgiveness plan

WASHINGTON — A deal to erase billions of dollars of debt for poor countries cleared an important hurdle Saturday, winning the endorsement of the International Monetary Fund's steering committee.

The breakthrough was announced by Gordon Brown, Britain's chancellor of the exchequer, who is chairman of the IMF's policy-setting panel.

Brown said negotiators had reached agreement on "all elements" of the debt cancellation deal. He said the IMF's 24-member executive board would meet soon to formally approve the deal.

"We worked very hard over the last few days as well as over the last few months to try to bring people to agreement on the proposals," Brown told a news conference late Saturday.

The agreement would forgive an estimated $40 billion worth of debt for at least 18 poor countries — most of them in Africa — owed to the IMF, the World Bank and the African Development Bank.

As many as 20 other countries could be eligible if they meet certain conditions. That would push the total amount of debt cancellation to more than $55 billion. The cost would be spread over decades.

The endorsement by the IMF steering committee came one day after the Group of Eight major industrial powers made firm pledges to underwrite the plan, a commitment intended to overcome the biggest obstacle to approval by the lending institutions.

A general framework for the deal was endorsed by leaders of the world's eight major industrial powers at an economic meeting in July in Scotland. The details of putting the deal in place were left largely to the World Bank and the 184-nation IMF to settle.

The deal still needs to be approved by the World Bank — a major lender to poor countries. The annual meetings of the World Bank and IMF continue today, and U.S. officials are predicting swift approval of the debt cancellation deal.

Treasury Secretary John Snow predicted the executive boards of the IMF and World Bank would formally approve the deal within a week.

"We've seen a real breakthrough on debt cancellation by the IMF," said Max Lawson, policy adviser to the charity Oxfam International. "The stage is now set for the World Bank shareholders to fulfill their part of the bargain."

By canceling their debts, poor countries could use the money for education or drugs to fight HIV/AIDS or malaria, supporters of debt forgiveness say.

"Finance ministers took an important step toward freeing some of the world's poorest people from decades of unfair debt burdens," said Oliver Buston, European director at DATA, a debt-relief group started by Irish rock star Bono.

The World Development Movement and other anti-poverty groups called the deal a good first step but were disappointed that the agreement didn't cover more countries.

The World Bank and IMF did not want the debt plan to impair their ability to provide aid and sought assurances the rich nations would put up the money to cover the loan repayments lost when the debts are written off.

Responding to those concerns, finance officials from the Group of Eight countries — the United States, Japan, Germany, France, Britain, Italy, Canada and Russia — pledged on Friday to "cover the full cost to offset dollar for dollar" the loan repayments that would be lost.

Snow said those commitments went far in allaying concerns among some countries that the lending institutions would be financially weakened.

The Saturday sessions of the IMF and World Bank took place while tens of thousands of people in the capital protested against the war in Iraq.

Separately, the Bush administration kept up pressure on China to go further in allowing its currency to rise in value against the dollar. U.S. manufacturers complain that Beijing still is keeping the yuan artificially low, which hurts U.S. exports and U.S. jobs.

China stopped linking its currency directly to the dollar in late July. Snow welcomed that development, but said it was now "critical that we see further moves."

China's finance minister, Jin Renqing, said China was pursuing "an independent and responsible" exchange rate policy. He described one-on-one talks with Snow on Saturday as "very friendly" but he gave no indication that any further revaluation of China's currency was imminent.

Separately, Zhou Xiachuan, the head of China's central bank, told a group of international bankers on Saturday night that China's whole economic reform philosophy was built on "gradualism." He said, "China is not in a hurry to move forwar