Debt forgiveness gathers steam

But some worry that 100-percent cancelation could spark a welfare-like dependency among poor nations. "It would certainly have an enormous short- term impact," says Harry Zarenda, an economist at Witwatersrand University here. "But what's worrying is the establishment of a precedent - that countries would expect the debt to always be written off."

It would also be unfair to less-indebted nations, observers say. And it won't necessarily solve the problem. All around Africa, governments rely on foreign donors to supply big chunks - sometimes two-thirds or more - of their annual budgets. Canceling their debt wouldn't likely staunch that demand.

And then there's the sticky question of how to pay for it. That's what the ministers from the US, Britain, Canada, France, Germany, Italy, and Japan will debate starting Friday.

As British Chancellor of the Exchequer Gordon Brown sees it, it's as easy as a little accounting change by the International Monetary Fund (IMF), the Washington-based organization that's bankrolled by rich countries and facilitates poor-country loans. The IMF has one of the largest stashes of gold in the world, some 103 million ounces. It currently values this gold at the 1971 price of $40 per ounce. But today's market value is about $400 per ounce. Revaluing the gold and selling a portion of it would give the IMF an extra $42 billion to work with, according to its website.

As for the rest of the needed funds, Britain advocates that rich nations step up unilaterally - as it has - to fill the gap.

That's where it's currently at odds with the US, which prefers that the IMF use its own funds - including money coming in from loan repayments - to fund the cancelation. "The Bush administration is quite keen on multilateral solutions when it comes to spending money on poor nations," notes John Williamson, a senior fellow at the Institute for International Economics in Washington. Critics, including Europeans, worry that this will eventually impoverish the IMF and impair its future ability to help poor nations.

The Bush team is reportedly also pushing for all future IMF money to be given out in the form of grants, not loans. This would, the logic goes, mean poor countries wouldn't have to worry about loan repayment. But Europeans are resisting the idea, because over the long term it risks shrinking the IMF's ability to give out funds. If it doesn't have loan money being repaid, it won't have money to give.

Regardless of what form it takes - and who pays for it - most observers figure some form of major debt cancelation is coming. Britain is expected to champion the cause when it assumes the presidency of the G-7 in 2005. And with an Iraq-debt deal still being worked out, the US is likely to continue pushing for poor-nation debt action, too.

Given how debt is dragging down poor nations' poverty-fighting efforts, and how much political will is behind cancelation now, Mr. Williamson says: "Something extra will have to be done."

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