Washington Writes Off $30m Ethiopian Debt As Famine Threatens

The Bush administration sought last night to bolster its sagging reputation in Africa, when it announced it was writing off $30m (£18.3m) in loans owed to it by the government of famine-stricken Ethiopia.

Keen to shore up support in the developing world at a time when the United States is stepping up the pressure on Saddam Hussein in Iraq, America's ambassador to Ethiopia signed the deal last night in Addis Ababa.

It is the second boost for the country inside a week after Nestlé, the world's largest coffee company, abandoned a $6m claim against Addis Ababa.

Washington's move is part of an international deal to cut the developing world debt, agreed by the World Bank and the International Monetary Fund three years ago after an unprecedented international lobbying campaign led by the Jubilee 2000 coalition.

Britain wrote off all of Ethiopia's outstanding loans in 2001, a total of £15.4m, under the agreement which is intended to reduce poor countries' debt to sustainable levels.

But aid agencies have warned that Ethiopia is still struggling to service its debts which total $5.4bn even after the writedowns.

Ethiopia is expected to pay back $87m to the western governments, the IMF and World Bank, even though the UN has warned that more than 11 million people are on the brink of starvation.

The country is also fighting off claims from 40 or so companies and private individuals who are demanding up to $500m in compensation for assets seized by the previous military government in the 1970s.

Britain's chancellor, Gordon Brown, is to meet the Ethiopian president, Girma Woldegiorgis, to discuss how to prevent payments to private creditors being subsidised by western taxpayers.

Mr Brown is backing an IMF drive to force private creditors to share the burden when indebted countries default on their debts.

Under the IMF's proposed sovereign debt restructuring mechanism, private sector creditors would be forced to accept a writedown in the value of their loans.

Ethiopia has paid back about half a billion dollars to its creditors since 1998, money which aid agencies say could have been used to help protect the country's farmers against drought.