LONDON - Leaders of the world's wealthiest economies have reached a groundbreaking agreement on debt relief for some of the world's most impoverished economies.
The historic deal, announced yesterday in London, will immediately wipe clean $40 billion worth of debt owed by 14 nations in Africa and four in Latin America. An additional nine countries could join the list in the next 12 to 18 months.
"We are presenting the most comprehensive statement that finance ministers have ever made on the issues of debt, development, health and poverty," said Gordon Brown, Britain's chancellor of the exchequer.
"The G-8 finance ministers have agreed to 100 percent debt cancellation for heavily indebted poor countries," said Brown, who was host to the two-day meeting of finance ministers from the Group of Eight leading industrialized nations.
Instead of spending $1 billion to $2 billion a year on interest payments, the poor nations would be able to redirect the money toward development projects. Among the nations that will benefit immediately are Mozambique, Ghana, Uganda, Ethiopia and Bolivia.
The agreement sets the stage for what is expected to be the dominant theme of next month's G-8 summit in Gleneagles, Scotland.
Brown said the debt relief plan would allow political leaders to "forge a new and better relationship, a new deal between rich and poor countries of the world." Members of the G-8 are the United States, Britain, France, Germany, Italy, Japan, Canada and Russia.
Brown and Prime Minister Tony Blair have become leading advocates of Third World debt relief. Their efforts have been given a considerable publicity boost in recent weeks by Sir Bob Geldof, the Irish rocker who is organizing a series of concerts and a demonstration around the July summit.
The idea of canceling the debts of poor nations has been gaining momentum for several years, but questions arose over the best way to approach it. If lenders such as the World Bank and the IMF write off loans, it means they have less money for making loans in the future.
That approach was preferred by the Bush administration, but Britain and other European nations argued that wealthy countries should take over the debts.
The agreement announced yesterday is apparently a compromise brokered by Brown in which the lenders will write off the debts but receive compensation from donor nations.
"We will not jeopardize the ability of these institutions to meet their obligations," Brown said at a news conference.
The United States will contribute an additional $1.3 billion to $1.7 billion a year to the lending institutions.
"A real milestone has been reached," said U.S. Treasury Secretary John W. Snow. "President Bush's commitment to lift the crushing debt burden on the world's poorest countries has been achieved. This is an achievement of historic proportions."
The agreement goes further than the one announced recently in Washington by Bush and Blair and could be expanded to include many more countries as soon they meet targets of good government, extricate themselves from armed conflicts and take steps to fight corruption.
"There is potential for 60, 70, even 80 countries to benefit from this," Brown told Britain's Sky News.
Brown said the agreement yesterday would immediately affect some $40 billion in debt, including servicing costs. But the amount it will cost the Group of Eight to compensate the international lenders is $16.7 billion - a calculation based on the payments the international lenders would have expected to receive from 18 debt countries between now and 2015, the officials said.
Overall, international lenders are owed some $55.6 billion, Brown said.
The Chicago Tribune is a Tribune Publishing newspaper. The New York Times News Service contributed to this article.