Rival plans for debt cancellation will be considered today, though observers are doubtful whether any concrete proposals will be announced. NGOs are delighted that the issue of debt cancellation, which has captured the public's imagination, is finally high on the agenda of international financial institutions. They remain pessimistic, however, that competing proposals can be reconciled easily or quickly.
A UK-sponsored plan, put forward by Chancellor Gordon Brown, envisages a revaluation of the IMF's 103.4 million ounces of gold held in reserves, potentially increasing the paper value of reserves by $30 billion. The difficulty with this idea, according to John Williamson senior fellow at the Institute of International Economics, is that if the gold is revalued on the Fund's balance sheet rather than sold in the open market, it will not directly provide dollars for the Fund to cancel debt.
A rival plan proposed by Debt and Development Coalition Ireland is to sell gold on the open market at a rate of 5 million ounces a year for the next 20 years. This has the advantage of raising dollars but despite the long time horizon designed to ensure the gold market is not adversely affected, gold producers fear lasting damage to prices. Major gold producers are located in the developing world and include influential nations such as South Africa and Brazil.
The US has only just come into the fray to advocate using the IMF's own funds, including repayments from loans, to fund debt cancellation. Europeans argue that this would damage the IMF's ability to lend in the longer run and is not self-sustaining.
Not surprisingly, none of these plans is welcome at the Bank and Fund. They are keen to pass more of the responsibility for debt relief onto countries and produced a paper to achieve this earlier this year. Essentially, the report calls for setting up new concessional lending windows funded by new money from shareholders.
As if these plans weren't confusing enough, there is talk of widening debt relief to countries that are not eligible for debt relief under the Heavily-Indebted Poor Countries programme (HIPC). The enthusiasm of the US to forgive Iraq's debts has prompted other rich nations to propose the debt of all heavily-indebted countries should be included in a full programme of debt forgiveness. These would include countries with much more significant levels of debt than those countries that qualified under HIPC such as Pakistan, Nigeria, Haiti, Jamaica and Indonesia.