A debt standoff

After a year of talking about helping debtor nations grow out of debt, the hope was that the (Group of Seven) leaders assembled in Lyon would at last translate fine words into action.

Almost everyone now accepts that some countries are so indebted that they cannot hope to reduce their debt to sustainable levels without some extra help from official donors. This fact alone represents a moral victory for heavily indebted nations and the non-governmental organizations which have lobbied on their behalf. But the G-7 leaders are still far from resolving differences over who should pay for the support and how.

To address the problem adequately the World Bank, individual governments and the International Monetary Fund need to play their part. To the World Bank's credit, its piece of the puzzle has recently fallen into place with the board agreeing formally to allocate $500 million to the debt relief initiative this year and $200 million each year thereafter.

It has been trickier to reach agreement on the second strand of the program. This is because the bilateral creditors as represented by the Paris Club have already taken some modest steps to write off developing countries debt. They are willing to concede further debt write-downs but only after the multilateral agencies have agreed to do their bit.

So far, so helpful. But a standoff between Germany and the rest of the G-7 over how to finance the IMF slice of the package may yet put a comprehensive approach to debt reduction out of reach.

-- Financial Times, London