The International Monetary Fund has approved a $4.8 billion package to cancel the debts of 20 of the world's poorest countries early next year under a plan launched in June by the Group of Eight major industrialised nations.
The IMF's portion of the multilateral debt relief initiative will be funded in part by profits from 1999 off-market gold sales, as well as existing contributions by 43 countries to the IMF's lending facility for poor countries.
To meet legal requirements, consent from all 43 countries is still needed to transfer funds to a trust for the debt relief, which in some countries needs parliamentary approval.
The IMF also said it had commitments from donors to fill a $285 million financing gap in the package.
The agreement will write off 100% of debts owed to the fund at the end of 2004. No provision has been made for debt issued after 1 January 2005.
Mark Allen, the IMF's director for policy development, said on Thursday: "We are now at the point where we have done most of the work inside the institution so that the fund can deliver debt relief to a large number of countries as of the start of the new year."
The World Bank is likely to announce a $38 billion debt relief package as early as next week, with the African Development Fund expected to follow.
Paul Wolfowitz, the World Bank
chief, is expected to announce
a debt-relief package soon
Among the countries to benefit from the IMF write-off are Benin, Bolivia, Burkina Faso, Zambia, Uganda, Cambodia, Tajikistan, Ethiopia, Ghana, Madagascar, Honduras, Guyana, Senegal, Nicaragua, Rwanda, Niger and Mali.
The debt relief could later be extended to another 24 countries.
The write-off will free up resources in the budgets for spending on poverty-reduction programmes, Allen said.
"It will relieve the budgets of these countries of considerable expenditures which we are hoping will be used to reach the millennium development goals," he said.
"We will be following up with countries in the course of our normal contacts on how they are actually spending this money."
To satisfy some donor concerns about whether the debt relief will be well used, Allen said the IMF would conduct a "spot check" to ensure that recipients' economic performances, budget systems and poverty reduction strategies were in order.
"It will relieve the budgets of these countries of considerable expenditures which we are hoping will be used to reach the millennium development goals"
IMF's director for policy development
Where performances have deteriorated, Allen said, the IMF will propose corrective measures.
"Once the countries have taken those remedial measures, then the relief will be given," he said. "We would hope those actions could be done quickly. We're not trying to hold this relief up."
The beneficiary countries, except Cambodia and Tajikistan, have already undergone IMF-supported economic programmes to qualify for a 1996 Heavily Indebted Poor Countries (HIPC) initiative that entailed reforms and anti-corruption efforts.
Allen said the HIPC initiative had already lowered the debts of some of the countries "to the average sort of level for low-income countries".
He said it was important that the countries did not accumulate debt again.
"We need to make sure that we don't contribute to a rebuilding of debt leading to further debt cancellation down the road," Allen said. "We will be paying particular attention in our work with all these countries to their borrowing in the future."