- The Washington Times - Wednesday, July 18, 2001

President Bush yesterday proposed that the World Bank give away billions of dollars to poor countries, a move the international financing institution said would be disastrous for the long-term stability of world economics.
In a effort to change the perception that the new president is falling short of his call for compassion on the world stage, Mr. Bush said the United States "is and will continue to be a world leader on responsible debt relief."
"I propose that up to 50 percent of the funds provided by the developing banks to the poorest countries be provided as grants for education, health, nutrition, water supplies, sanitation and other human needs.
"It would be a major step forward. Debt relief is really a short-term fix. The proposal today doesn't merely drop the debt, it helps stop the debt," Mr. Bush said in a speech to the World Bank on the eve of his trip to Italy to meet with leaders of the most industrialized nations plus Russia, the Group of Eight.
"A world where some live in comfort and plenty, while half of the human race lives on less than $2 a day, is neither just nor stable," he said.
The World Bank now lends about $6 billion yearly to poor countries through the International Development Association (IDA). Mr. Bush wants to increase grants — which now account for less than 5 percent of the funds directed to poor nations — to $3 billion annually.
Mr. Bush called his proposals "compassionate conservatism at an international level."
World Bank officials, however, said the president's proposals could not be achieved without donor members providing billions of dollars more for aid, especially the Group of Eight nations (Germany, Italy, Canada, Britain, France, Russia and the United States). The United States this year gave $803 million, the most of any member country.
"In the very short run, there would not be a dramatic effect," said Jeff Lamb, director of resource mobilization for the World Bank. "If today we grant — take any IDA country, Uganda, Ghana — a loan of $10 million, there is a 10-year grace period before they start repaying. For 10 years the loan looks just like a grant on our balance sheet," he said.
"What happens in year 11, where you would be getting money back in on a loan, we won't get that. At that point, donors — or somebody — either have to start making up all of those grants that we've been making or else the capacity of IDA to help other poor countries just goes in the toilet."
Some World Bank officials said the president's proposal is merely political posturing because the effect would not be felt until Mr. Bush is no longer president. "He will be well out of office before there is any effect from his proposals," said one, who asked to remain anonymous.
Others said the Bush proposals have virtually no chance of passing muster with other donor nations, who have looked at increasing grants to about $1 billion a year. These officials said Mr. Bush can safely propose an extemely high price tag without fear that the United States will actually have to fund the increase.
But Alan Meltzer, a professor at Carnegie Mellon University in Pittsburgh and chairman of a blue-ribbon panel that studied the World Bank, said the proposals will work, and the institution's claim that donations would have to increase dramatically is incorrect.
"That's a statement that is made out of ignorance. That's absolutely false. It's shameful that they continue to produce these canards.
"Despite what they say, the grants proposal would be more efficient; that is, they would be able to give more aid with the existing resources," Mr. Meltzer said.
The World Bank would give, for instance, half the amount of the requested loan and the poor country would be able to borrow the rest "because they have the bank's guarantee," Mr. Meltzer said.
"You can understand the motivation of the bank. The bank always wants to use any opportunity to get more money. It doesn't need more money, assuming the repayment of the existing loans," he said.
A spokesman for House Majority Leader Dick Armey said the Texas Republican, an outspoken critic of the World Bank and the International Monetary Fund, supports the president's proposals.
"The proposal generally tracks the Meltzer commission, which is something Mr. Armey has endorsed," Greg Crist said. "The feeling is this is the best course of action in giving those countries the financial boost they need to sustain their long-term growth and development."
Mary Ellen Countryman, White House assistant press secretary for foreign affairs, said the Bush proposals are simply plain speaking. "Let's call it what it is. A lot of the loans aren't getting paid back anyway."
Mr. Lamb, however, said the perception that debts held by poor countries are not repaid is simply untrue. "IDA's repayment record from those countries is pretty stellar. We have had around 3 or 4 percent of nonpayment over the years. In other words, countries do pay us back."
He said $40 of every $100 the World Bank lends to poor nations comes from repayment of debt.
While 23 countries, now known as Heavily Indebted Poor Countries under a program begun in the mid-1990s, have been relieved of $34 billion in loans from the World Bank, increasing grants to 50 percent "would completely change the nature of the funding you would have to have in order to do that," Mr. Lamb said.
"Having a bit more grant money, maybe 10, 15, 20 percent, for these very specific purposes, that kind of makes sense and it doesn't change the whole nature of their financing. To suddenly say, 'Let's convert 50 percent of it into a giveaway' is not really sustainable," Mr. Lamb said.
The president's proposals, he said, are merely a short-term fix.
"The proposals the president made, maybe they resonate with the sort of stuff about faith-based charity and such, but they don't resonate with conservative economics to me. That's the bottom line," he said.
In his speech, Mr. Bush made a pre-emptive strike on protesters who oppose globalization and free trade and are preparing to disrupt the G-8 meeting in Genoa.
"I respect the right to peaceful expression, but make no mistake — those who protest free trade are no friends of the poor. Those who protest free trade seek to deny them their best hope for escaping poverty," he said.
Italian authorities are bracing for as many as 100,000 protesters during the summit.

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