Brown challenges West to write-off poor nation loans

THIRD WORLD DEBT The Government's offer to cancel pounds 640m owed by the poorest countries may shame other lending nations into following suit

GORDON BROWN made a strong plea to other countries yesterday to match his pledge to write off debt amounting to hundreds of millions of pounds owed to Britain by the world's poorest countries.

The Chancellor confirmed that he would wipe the slate clean for 41 of the world's poorest countries by not demanding repayment of money owed. The first four states to receive debt relief under the initiative are Uganda, Mozambique, Mauritania and Bolivia.

The Government stressed that the relief was linked to a conditionality clause ensuring that countries spend the money saved on education, health and reducing poverty. For example, Uganda has promised to use the money to halve the pupil-teacher ratio in primary schools and to improve water purification and sanitation.

The cost of the bilateral initiative will be pounds 640m, although that will be spread over 20 years. It will increase Britain's overall debt relief package for Heavily Indebted Poor Countries (HIPC) to more than pounds 5bn.

The announcement, made from Downing Street, was welcomed by campaigners for the relief of Third World debt.

The Chancellor said: "Britain has played a leading part in securing a multilateral deal on debt relief that will reduce the debts of these countries by two-thirds. The time is now right to take the extra step on our own and to lift the burden of the remaining debt to us. I have therefore taken the decision that we will remove the burden of debt to the British Government of all countries that come through HIPC process."

Mr Brown made clear he hoped other countries that have been hesitant to write off debt would follow suit. "This is a pledge with a purpose, because we want other countries to follow our lead," he said.

The government announcement, which came after contact with other Western nations, is part of an enhanced HIPC programme discussed by the European Union, the Group of Seven leading industrialised nations and the International Monetary Fund.

The offer of complete debt relief for the poorest countries builds on an earlier multilateral agreement by creditor nations to aim for 90 per cent debt relief. The initiative should benefit 10 nations by April and another 25 by the end of next year - if they ensure money saved goes towards reducing poverty by a 2015 target date.

Mr Brown said: "The IMF and World Bank have drawn up a poverty reduction strategy, which all chosen countries must sign. This has timetables and dates which must be stuck to. The countries have promised that for our debt relief they will put their money into health, education and poverty relief. We don't want the money to be spent on arms or corruption."

Justin Forsyth, Oxfam policy director, said the announcement would raise pressure on other industrialised countries. "The challenge now is to convince the debt doubters, like Germany, France and Japan, to do the same."

The global campaign to end Third World debt, led by aid agencies, was the main factor behind the demonstrations at the Seattle trade summit three weeks ago.

A Christian Aid spokesman welcomed Mr Brown's initiative, but called on him to redouble efforts to persuade other countries to do more. "It is the millennium gesture Christian Aid has been pushing for. However, it is not enough. We now urge Gordon Brown to strenuously lobby the G7 finance ministers to follow suit."

THE FIRST FOUR TO BENEFIT

BOLIVIA

One of the poorest states even before the collapse of tin prices in the 1980s, Bolivia has kept prices stable for a decade, with steady economic growth of about 4 per cent a year. Britain is its second biggest trading partner, after the US. President Hugo Banzer is committed to fighting the drug trade, although the black market for cocaine was worth $350m a year. There is a chasm between the elite and the masses, and average income per head of $1,100 is misleading. Outside investors can buy up to 50 per cent of state industries; the rest of the shares are distributed into pension funds for ordinary citizens.

UGANDA

Uganda, where coffee-growing dominates the economy, is seen as one of the top pupils among debt-relief seekers because it has established mechanisms to guarantee that money saved under the Heavily Indebted Poor Countries (HIPC) initiative is directed at education and sanitation programmes. Despite signs of growing prosperity since President Yoweri Museveni took control in 1986, the former British colony is embroiled in regional wars that continue to take a toll on the economy. The rehabilitation of Ugandan industry has been slow andWestern investors remain unwilling to provide a real boost by helping to create a manufacturing industry.

MAURITANIA

Mauritania, with 2.2 million people, is one of the few countries in the world controlled by people who are traditionally nomads. Iron ore provides the vast West African country's main source of foreign currency but agriculture, especially herding and fishing, occupies most of the population. Mauritania's democratic record is questionable with frequent claims that slavery is still widespread. But champions of the country argue that it will soon become one of the few nations in Africa in which primary school education is universal.

MOZAMBIQUE

Mozambique, a former Portuguese colony that overcame decades of war to emerge with one of the continent's most promising economies, benefits from being next door to South Africa. Even though largely rural, the market- friendly country, whose President, Joaquim Chissano, has just been returned to office for a further five years, is successfully attracting foreign investors. Many are South African but others are British and use Johannesburg- based businesses and subsidiaries as a stepping stone towards a cheap labour market. Consequently, Mozambique is building a potentially buoyant economy.