More Grants, Less Loans

Previewing this week's Group of Eight summit in Italy, President Bush proposed Tuesday that the World Bank and other international lending institutions dramatically increase the share of their resources provided as grants rather than loans.

In a speech at World Bank headquarters here, Bush also called on the world's lending institutions to make major increases in loans and grants aimed at boosting education in Africa and other poor and developing nations.

Many of those countries are burdened with huge accumulated debts. "The United States is and will continue to be a world leader on responsible debt relief," Bush said.

"I also propose the World Bank and other development banks dramatically increase their share of funding provided as grants rather than loans to the poorest countries," Bush said.

"Specifically, 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," the president said. "Debt relief is really a short-term fix. The proposal today doesn't merely drop the debt, it helps stop the debt."

Bush called his proposals "compassionate conservatism at an international level."

Bush's suggestion that the World Bank should substitute grants for many of the heavily subsidized loans it now makes is an effort to help the world's poorest nations, already struggling under mountains of old debt, from building up new debt burdens.

But critics say unless the administration offers to provide more money to the World Bank, the bank would end up with less money to help poor nations because the bank now uses the repayments of its old loans to make new loans.

World Bank officials estimate that if the United States ended up persuading other bank members to agree to convert half of the bank's loans to grants, the United States would have to double its current $803 million annual contribution just to keep the bank's pool of aid at current levels.

The idea of converting World Bank loans to grants is one of the recommendations made by a blue-ribbon panel chaired by Alan Meltzer, a professor at Carnegie Mellon University in Pittsburgh and endorsed by conservative Republican leaders in Congress.

Many of the suggestions in Bush's speech have been pushed at the World Bank by Treasury Secretary Paul O'Neill, who has made reform at both the World Bank and the International Monetary Fund a top priority. Tuesday's speech marked the first time the
administration named a specific figure.

O'Neill has contended that the IMF and World Bank need to be much better focused on their core missions and cut back on supplementary programs. The administration wants the IMF to improve its ability to detect and prevent financial crises. It wants the World Bank to place a stronger focus on efforts to improve workers' productivity in poor nations as a way of fightig poverty.

Bush's speech came ahead of a trip to Europe to attend the Group of Eight summit in Genoa, Italy. The theme of the summit is poverty alleviation.

He said half the human race lives on less than $2 a day, a situation he said was neither just nor stable.

Bush also turned his attention to street demonstrations that have been threatened by anti-globalization protesters when he meets in Genoa, Italy, this weekend with Russian President Vladimir Putin and leaders of Britain, France, Germany, Japan, Italy and Canada.

Such protesters "seek to shut down meetings because they want to shut down free trade. ... Make no mistake, those who protest free trade are no friends of the poor" and "seek to deny them their best hope for escaping poverty."

He said one of the developing world's top priorities ought to be helping poorer nations free themselves from the crippling burden of massive debt.

Speaking to reporters in the Oval Office Monday, Bush made clear he'll also try anew to convince skeptical world leaders that an effective U.S. missile defense system can play a key role in a 21st century strategy for peace.

"I really look forward to making progress on key issues, such as missile defense and world trade," the president said.

His positions on missile defense and global warming are matters of principle and shouldn't be expected to change, he said.

"On both issues I have made my positions clear," Bush said. "People shouldn't doubt where the United States stands."

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