Controversial element on private investment in six-point G8 plan
The leaders of the world's most powerful industrial economies, the G8, are set to approve a key six-point plan to provide a much more solid foundation for the functioning of global financial markets.
In the culmination of discussions stretching back almost two years, the proposals are expected to be finally agreed this weekend, and are likely to include a controversial framework that will shape how the private sector lends in the future to emerging markets.
The plan, which comes after policy-makers were stunned by the rapid spread of contagion in Asia after the July 1997 devaluation of the Thai baht, is also expected to provide a first-aid kit of procedures to help governments which suddenly have to deal with an economic crisis.
Involving the private sector in forestalling and resolving financial crises has been the most contentious element of the financial market reform discussions, and has sparked fierce opposition, in particular from banks, who fear they will be forced to participate in bail-out packages.
But officials insisted yesterday there would be a clear statement which would move countries away from the traditional ad-hoc approach to dealing with financial crises to a more organised system.
This represents a blow to the United States, which has backed a case-by-case approach, and it will mean that authorities have the power to force banks and investors exposed to a stricken country to help share the burden of keeping it afloat.
British officials, who have been among the loudest proponents of financial architecture reform, said countries which have slipped into crisis would find that foreign government support would in future be commensurate with the crisis nation's own efforts to restructure and refinance its own debts.
This means that a country receiving funds from the International Monetary Fund will not be permitted to use such funding to pay back its private sector creditors.
It will also find it difficult to enter into debt-repayment standstill arrangements while rescheduling agreements are being negotiated.
The reforms are a milestone in the long-running financial architecture discussions, although many countries believe that more work will still have to be done to strengthen the way banks, investors and markets behave.
The reforms come as agreement is also likely to be reached on proposals for alleviating the crippling debt burden on the world's poorest countries.
Campaigners are still lobbying hard but it is likely that few further concessions will be granted beyond a present proposal that would see as much as about US$70 billion of debt owed by 41 countries entirely written off.
That represents a vast improvement on an existing initiative, although officials from the relief agency Oxfam said they were still hoping for more.
Debt relief is seen as not only a means of boosting the economic potential of poor countries, but also ensuring the spread of democracy.
Officials are particularly concerned that some African countries still spend up to 60 per cent of their gross domestic product on debt service payments.