The deal to cancel $55 billion of debt of the world's most heavily indebted poor countries neared completion last night, after it was approved by the IMF's steering committee.
Yesterday's agreement by the International Monetary Finance Committee (IMFC) writes off some $4 billion of the total sum, but the full deal is not yet finalized.
British Chancellor and IMFC chairman Gordon Brown, however, was confident that the agreement would be completed today. 'We believe the same principles [which led to the IMF's approval] will inform the decision of the World Bank', he said.
That decision should come at today's Development Committee meeting Ð thereby completing what Brown called a 'historic process which began five years ago'.
This would enable the debt to be relieved by the end of this year, said an obviously delighted Brown, a prime mover in the initiative.
US Treasury Secretary John Snow was similarly upbeat about the prospects of agreement being reached today. He expressed confidence on Friday that the G8 would be able to satisfy the concerns of those countries still opposing the deal.
IMF Managing Director Rodrigo de Rato said that the Fund's commitment to debt relief - which had been poised on what Brown termed a 'knife edge'- had finally been signed, sealed and delivered yesterday when the IMFC agreed to three vital principles governing the debt relief package.
The most difficult issue to resolve was that of 'additionality,' whereby the World Bank, IMF and African Development Bank are compensated for the financial flows they effectively forsake in agreeing to relieve debt to the poorest countries.
This hurdle was overcome after G8 finance ministers agreed on Friday to indemnify their respective shares of the burden. The other two principles covered 'conditionality' attaching to debt relief and 'uniformity of treatment'.
Brown emphasized that the debt relief move was not to be interpreted as encouraging 'profligacy' on the part of borrowing countries, because strict conditionality applies to the relief. The financial burdens had been aken on by borrowing countries some 20 years ago and it is unrealistic to expected them to repay, he said.
De Rato also noted that the international community has accepted the principle of debt relief in countries whose burdens have become 'impossible to face.' Some countries are still making repayments, but debt relief will enable them to put money to more constructive uses, Brown added.
The 24 finance ministers and central bank governors from developed and developing countries on the IMFC also agreed on a range of measures to alleviate pressures on the global economy that have arisen from high oil prices, which Brown noted had 'doubled over the past year and tripled since 2002' in nominal terms.
The committee repeated the call made on Friday by G7 finance ministers for an accelerated unwinding of global financial imbalances, and agreed on two measures to strengthen IMF assistance to poorer countries.
On oil, the IMFC emphasized that 'oil producers, consumers and oil companies will all have to play their part in working together to promote greater stability in the oil market'.
The ministers called for further investment both now and in the long term throughout the supply chain, particularly in refining capacity, and for efforts to create a favourable investment climate. They stressed the need for energy conservation and efficiency and for reducing subsidies on oil products.
Ministers gave the green light to a new IMF Policy Support Instrument which de Rato said would allow those countries that do not wish or need to borrow from the IMF to benefit from the Fund's macroeconomic advice, under special conditions.
They also approved a new window to enable poor countries suffering from economic shocks such as volatility in the price of commodity exports to draw temporary finance for balancing external payments.