Bush favours grants for poor nations

Bush: The US will take a responsible stance on debt relief

The World Bank should give more grants and fewer loans to the poorest nations, US President George W. Bush has said in a speech at the World Bank.

The proposals will form part of the US position at the forthcoming G8 Summit of world leaders in Genoa which begins on Thursday. He has called on the bank to "dramatically increase" the proportion of aid given as grants rather than loans in order to help lift the burden of debt on poor countries.

I propose that up to 50% of the funds provided by developing banks to the poorest countries be provided as grants

US president, George W Bush

The president said a shift away from loans would be "a major step forward" for poverty relief.

"Specifically I propose that up to 50% of the funds provided by developing banks to the poorest countries be provided as grants for education, health, nutrition, water supplies, sanitation and other human needs", said Mr Bush.

He also promised that "the United States will continue to be a world leader on responsible debt relief."

The plan may help restore US credibility in Genoa, where there is disagreement about US views on global warming and missile defence.

Plain speaking

Earlier, a senior Bush aide told journalists the policy makes sense because many World Bank loans are eventually written off.

"Let's call it what it is. It's a grant," said Mary Ellen Countryman, the White House spokeswoman for the National Security Council.

World Bank officials estimate the US would have to double its contributions to the bank's funds if it succeeds in persuading other nations to adopt the policy of converting 50% of loans to grants.

The US currently contributes $803m a year.

The Bank is able to use repayments of loans to fund new loans - and it is currently seeking fresh funding from its member governments.

Republican reforms

President Bush's proposal is one of the recommendations made by a panel on reforming international financial institutions.

The panel was chaired by Professor Alan Meltzer of Carnegie Mellon University and supported by Republicans in Congress.

But the panel also proposed cutting back sharply on World Bank lending to middle income countries like China and Brazil - a proposal that is likely to run into fierce opposition.

Referring to the G8 summit in Genoa later this week, which is expected to attract protests against globalisation, the president said: "Those who protest free trade are no friends of the poor."

"Those who protest free trade seek to deny [the poor] their best hope for escaping poverty," he said.