THE G-7 leaders took a significant step towards a major £3.5 billion debt reduction programme for the poorest Third World countries, although the deal will not be finalised until the autumn.
President Jacques Chirac of France hailed the progress made yesterday on the issue as one of the summit's major achievements. It appears, however, that it will benefit fewer than the 20 countries he had anticipated.
The programme is due to be agreed at next September's annual IMF and World Bank meeting. The programme, expected to target 10 countries, mostly in Africa, will involve debtor states agreeing to write off a very large part of what is owed to them the World Bank committing £1.3 billion to reducing these debts; and the International Monetary Fund providing further support through utilising its reserves.
Most of yesterday's discussion focused on the third element of the proposal, which for six of the seven G7 states means a sale of IMF gold. While France and Japan have dropped their opposition, Germany is still resisting the idea that the IMF would sell sonic of its gold reserves to fund its part of the plan.
The agreement announced yesterday afternoon was that the IMF would "optimise its reserves management" without specifying that this would involve the sale of gold. According to the Canadian Prime Minister, Mr Jean Chretien, Germany's reluctance to countenance a gold sale is based on its own history.
"In Germany this is as politically, sensitive as you can imagine, he told a press conference after the meeting. "Twice this century they suffered from the collapse of their currency. Now they are giving up the deutschmark to join Economic and Monetary Union."
The Bundesbank, which has led the opposition to the gold sale, fears that it would weaken the IMF by running down its reserves. The proposal is to sell 5 per cent of the IMF gold reserves, some five million ounces worth £700 million. The proceeds would be invested and the profits from this investment used to fund the debt relief programme.
The programme would only be made available to very poor countries which have agreed Enhanced Structural Adjustment Programmes (ESAFs) with the IMF. These ESAFs involve commitments to opening their economies to foreign trade and investment, making commitments not to spend the money on arms or social programmes.
Another part of the programme involves the so called Paris Club of debtor countries agreeing to write off 80 or 90 pea cent, up from 67 per cent, of the debt owed to them by these countries.
The final agreement will be reached at the autumn meeting of the IMF and World Bank. The Minister for Finance, Mr Quinn, will give the EU position.