G8 ministers warn China on cheap Africa loans

dpa German Press Agency Published: Saturday May 19, 2007

Potsdam, Germany- In a warning to China, Western finance
ministers begged lenders Saturday not to cast Africa into a new debt
spiral by offering it cheap loans.
Peer Steinbrueck, the German minister hosting talks among
officials from the seven leading western nations and Russia, said
lending was growing, particularly by China, motivated by a desire for
raw materials.

"It is setting off the spiral that we wanted to eliminate with
debt forgiveness," he said. "It contradicts policy that was agreed at
the International Monetary Fund."

However a document issued by the Group of Eight (G8) ministers
after a two-day meeting by a lake at Potsdam near Berlin did not
explicitly mention China as a lender.

Steinbrueck said the topic would be up for debate at the autumn
meeting in South Africa of the G20, a group that combines the G8 and
major emerging economies including China and India.

He said the G8 had drafted principles for granting credit
"responsibly" but had not adopted them, since it wanted to hear the
views of borrowers first.

Policy on Africa is to be a key issue at the summit next month in
Germany of the G8, comprising the United States, Japan, Canada,
Germany, France, Britain, Italy and Russia.

In 2005, the G8 agreed to forgive 60 billion dollars in debt if
developing nations begin to fight poverty.

The finance ministers also appealed for stalled talks on
liberalizing world trade to be brought to a resolution.

Western lenders are to be encouraged to buy bonds in emerging-
market currencies such as the rupee and renminbi, the G8 finance
ministers said.

The seven leading western nations and Russia drafted a "plan of
action" to help nations such as China, India, Mexico, Brazil and
South Africa to boost their local-currency bond markets.

This would protect their growing economies better from world
currency fluctuations.

Those nations face a major risk of economic crisis when a large
part of their lending is denominated in dollars, euros and other
leading currencies. A devaluation of the home currency could bring
them to their knees.

Steinbrueck said it was a good time to expand bond markets in
those nations. High rates of saving and plenty of liquidity meant
outside investors were keen to put money into emerging markets.

He said there had been progress, but more had to be done to
increase liquidity in emerging markets, where the volume of bonds in
denominated in the local currency averaged just 43 per cent of gross
domestic product compared to 140 per cent in developed economies.

The German minister said there was growing agreement on improving
supervision of hedge funds, the highly speculative investment
vehicles which policy-makers fear could cause a world economic crash.

"Our differences among one another do not involve the substance so
much as the form," said Steinbrueck.

Britain and the United States prefer self-policing by the hedge
sector.

© 2006 - dpa German Press Agency

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