Feb. 5 (Bloomberg) -- Finance ministers from the Group of Seven industrial nations are struggling to break a deadlock in talks over international aid as they seek to form a united approach on combating world poverty.

While the G-7 members each support a combination of higher foreign aid and eradicating the debt of poor countries, they are at odds over how to generate the funding as they began a final day of talks in London.

The U.K. wants rich nations to provide more cash and to tap capital markets and the International Monetary Fund's gold reserves. The U.S. refuses to back such approaches, preferring to push its own aid initiative and an idea for the World Bank to eliminate debt and replace loans with grants. France and Japan also have proposals.

``It's going to take a lot of work and it's going to take some movement on the part of two or three countries in particular,'' Canadian Finance Minister Ralph Goodale told reporters.

African leaders and aid groups pressed ministers to reach a compromise. ``Africa cannot have economic stability until you provide 100 percent debt relief, and you have the ability to do that,'' former South African President Nelson Mandela told the G-7 officials at a meeting late yesterday.

Four Plans

Ministers doubted a consensus could be found this weekend. ``There is disagreement,'' U.S. Treasury Undersecretary John Taylor, who is leading the U.S. delegation at the G-7 because Secretary John Snow is ill, said in an interview yesterday.

``There are four plans on the table -- the French, British, Japanese and American,'' Italian Finance Minister Domenico Siniscalco told reporters. ``We need to try and work toward an agreement to get that down to one.''

U.K. Chancellor of the Exchequer Gordon Brown said this week he hoped the G-7 would agree within weeks to revalue the IMF's 3,217 metric tons of gold, worth over $43 billion at current market prices, and use the revenue to pay down debt.

``There is an understanding in most of the industrial countries that this is the best way forward to dealing with this question,'' Brown told the U.K. parliament two days ago. IMF Managing Director Rodrigo de Rato said yesterday revaluing the reserves would be an ``effective way'' of financing debt relief if his shareholders supported it.

U.S. `Unconvinced'

While the metal's price fell to its lowest in thee months yesterday, in part because of speculation the G-7 will approve sales of it, Taylor said the U.S. is ``unconvinced'' by the idea and wants the IMF to study other ways of raising money for debt relief by changing the way it manages its loan portfolio.

The U.S. promoted its own proposal for the World Bank to cancel debts it is owed and then swap loans for grants targeted at specific goals such as improving education. The U.K. objects because it thinks rich nations rather than the Washington-based lender should foot the bill and is concerned that handouts shrink the pool of available funds by stopping loan repayments.

``We're considering all options, but we're not convinced of gold sales for dealing with debt issues,'' said Taylor. ``We have a proposal ready to go that doesn't require gold sales to write off debt.''

Brown's Design

The U.S. and U.K. also disagree on how best to issue bilateral assistance to poor countries. Brown has designed an ``international financing facility,'' whereby wealthy countries make long-term commitments that governments can use as collateral to borrow against in capital markets.

The U.K. wants to double the amount of international aid to Africa to $100 billion each year by 2015. Recipients would be required to meet basic good governance standards.

Taylor said the U.S. won't back Brown's financing facility because Congress can't make budget commitments beyond one year. The U.S. prefers to funnel money through its Millennium Challenge Account, which ties increases in U.S. aid to specific goals. It has $2.5 billion to spend, although federal budget deficits mean that is half of what President George W. Bush pledged.

The U.K. said it has won the backing of France, Germany and Italy and will continue to lobby the U.S. ``The IFF is winning support,'' said a U.K. Treasury official. ``There is nothing new in John Taylor's comments. We remain committed to working with the U.S. administration to consider how the IFF could be considered to their needs.''

Pilot Program?

Germany says it will back a test version of Brown's IFF, only it wants the bond guarantees to come from a tax on air fuel duty, not increased aid budgets. Support for Brown's idea from Germany, France and Italy means a pilot program may be possible even without U.S. backing

Japan wants to establish a fund at the African Development Bank that would lend to African companies at low interest rates, its finance ministry said last week. It opposes writing off debt amid a budget deficit and because of difficulties for countries receiving new loans. Instead, debt should be reduced to 120 percent of total export value. Japan also said it won't agree to Brown's IFF.

David Bryden, a spokesman for the Washington-based Global Aids Alliance, said Japan's aversion to debt relief is ``ridiculous'' and called on its government to rethink.

The aid debate is a rare split between the U.K. and U.S., which joined together and broke with France, Germany and Canada to launch the Iraq war and whose leaders boast of a personal friendship.

France has also introduced its own strategy of raising funds by taxing international capital flows, including financial transactions and plane tickets. The majority of the G-7 said in October they opposed that idea.

Canada this week promised to provide C$172 million ($139 million) over the next five years to help poor countries repay their debt. Its government has also said it can't endorse Brown's financing facility because of domestic budget rules.

To contact the reporters on this story: Simon Kennedy in London at skennedy4@bloomberg.net; Gonzalo Vina in London at gvina@bloomberg.net.

Last Updated: February 5, 2005 05:10 EST