17 June 2002

O'Neill: U.S. Pleased With G-7 Action on Grants for Poor Nations

Treasury Secretary Paul O'Neill says the United States is pleased with the decision of Group of Seven (G-7) finance ministers to endorse the increased use of outright grants to poor countries by the World Bank's International Development Association (IDA).

The finance ministers of Canada, France, the United Kingdom, Italy, Japan, Germany and the United States met in Halifax, Nova Scotia, June 15 and agreed that nearly 100 percent of IDA assistance to poor countries for key social sectors should be made in the form of grants rather than loans, O'Neill said in a statement following the meeting.

IDA is the arm of the World Bank that makes concessional loans to the world's poorest countries. The United States has been urging development banks to provide 50 percent of their funds for poor countries as grants for education, health, nutrition, water supply, sanitation and other key human needs.

"This is a victory for poor nations around the world," O'Neill said. "Countries like Ethiopia, Ghana and Uganda -- which I visited last month -- have up until now been required to take out loans to finance their HIV/AIDS programs. Under this new agreement, they will receive those funds as grants -- avoiding the need to tax their citizens who earn less than a dollar a day in order to pay back the funds borrowed for this crucial protection of human capital."

O'Neill said the ministers had discussed the World Bank's debt relief initiative for Heavily Indebted Poor Countries (HIPC) and reiterated his position that the success of HIPC will ultimately depend on a country's ability to grow economically. "A debt-free nation still needs income to be prosperous," he said.

He expressed confidence in global economic growth, saying that the U.S. economy will likely reach a 3-3.5 percent annual rate of growth by the end of 2002 and that several G-7 colleagues had encouraging reports from their own countries. "There is no question that global growth has strengthened," O'Neill said.

The finance ministers' meeting was one of a series leading up to the June 26-27 summit of Group of Eight (G-8) leaders in Kananaskis, Alberta. The G-8 includes all G-7 countries plus Russia.

Following is the text of O'Neill's statement:

U.S. Department of the Treasury
Office of Public Affairs
June 15, 2002
Statement of Secretary Paul O'Neill
Following the Meeting of G-7 Finance Ministers in Halifax

First let me thank Minister Manley for hosting a productive session of the G-7 Finance Ministers here in Halifax. I enjoyed meeting him and Minister Mer of France, and look forward to working closely with each of them.

During our meetings here today, I reported to my colleagues that I believe the U.S. economy is on track to reach a 3 to 3.5 percent rate of growth by the end of this year. And I was encouraged by the reports of several of my fellow ministers on the outlook for growth in their economies. There is no question that global growth has strengthened. We also devoted some time today to discussing measures that could further enhance medium-term growth prospects in our economies.

I am very pleased that we have reached agreement that the International Development Association (IDA) should increase substantially the amount of development assistance delivered to the poorest countries from loans to grants. We will now work with the other IDA donors to complete the IDA replenishment. Last summer, President Bush called on the development banks to provide 50 percent of the funds to poorest countries "as grants for education, health, nutrition, water supply, sanitation and other human needs." The agreement by the G-7 Finance Ministers would do more than that, with grants for nearly 100 percent of the assistance to the poorest countries in these key social sectors. This is a victory for poor nations around the world. Countries like Ethiopia, Ghana and Uganda -- which I visited last month -- have up until now been required to take out loans to finance their HIV/AIDS programs. Under this new agreement, they will receive those funds as grants -- avoiding the need to tax their citizens who earn less than a dollar a day in order to pay back the funds borrowed for this crucial protection of human capital. By moving from loans to grants, we can prevent the poorest nations from building up suffocating debt and we can avoid the next generation of debt relief.

We had a useful discussion of debt relief today, and I reiterated my point that debt relief is not a cure-all. The ultimate success of the HIPC Initiative will be measured not by the weight of a poor nation's debt but by that nation's ability to create economic growth. A debt-free nation still needs income to be prosperous. I urged my colleagues to focus our international assistance on getting results, so that poor nations develop their own private economies to generate self-sustaining prosperity.

Last month in Romania I saw remarkable success from the European Bank for Reconstruction and Development's (EBRD) small business program, and in Africa I met entrepreneurs backed with micro-finance assistance who were building the health and wealth of their communities. I urged my fellow ministers today to increase the focus of the development banks on supporting small and medium-sized enterprises.

We also discussed the World Bank's Education for All proposal, and I reiterated what I said to the Development Committee in April: "We believe the World Bank and other donors should be prepared to significantly increase funding for basic education in those countries with strong policy and financial commitment to this sector. Bank plans to 'fast-track' universal primary completion in some ten countries is a welcome first step as long as countries are selected on the basis of credible performance and donor efforts are well coordinated." I requested that the World Bank's proposal start with the measurable results to be achieved, for example a specified improvement in the numbers of children demonstrating strong functional competencies in reading, writing and computing by the age of 10.

We reviewed progress since our last meeting on combating of terrorism financing. We continue to make progress in preventing the abuse of our global financial system by those who would destroy innocent lives. The Ministers also discussed the importance of having the IMF [International Monetary Fund] and World Bank begin conducting integrated and comprehensive assessments to combat money laundering and the financing of terrorism.

We similarly reviewed progress on our spring statement on the creation of an orderly sovereign debt restructuring process. We were pleased to note that the private sector is already putting forward clauses consistent with our April 20th Action Plan. We also continue to support the IMF's work on a sovereign debt restructuring mechanism.