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Breakthrough on World Bank aid
comes on eve of G7 finance ministers meeting

by TOM COHEN, Associated Press Writer  6/13/2002


HALIFAX, Nova Scotia - On the eve of talks by finance ministers of the world's industrial powers, a U.S. official announced an agreement in the long-running dispute between the United States and Europe over World Bank ( news - web sites) support for poor countries.

The question giving World Bank aid as grants, without repayment, instead of low-interest loans was on the agenda for the two-meeting of the Group of Seven finance ministers that starts Friday.

In a prelude to the G-8 leaders' summit, the finance ministers will discuss new ideas for development aid for their bosses to consider when they gather in Kananaskis, Alberta, on June 26-27.

On Thursday, the administration of U.S. President George W. Bush ( news - web sites) said a compromise reached with European nations will boost World Bank grants to poor nations to a range of at least 18 percent and up to 21 percent.

That figure is far short of the 50-percent target Bush proposed a year ago, but U.S. Treasury Under Secretary John Taylor called the agreement "a compromise which everyone can view as a win."

The United States has argued that the World Bank, which currently extends almost all of its support to the poorest nations in the form of low-interest loans, should shift to grants that don't have to be repaid.

Britain and other nations in Europe argue that plan could reduce World Bank resources in the future unless rich countries agreed to significantly increase their level of support.

U.S. officials said they viewed the compromise as a victory because it will increase the level of grants, noting that in certain areas — such as HIV ( news - web sites)-AIDS ( news - web sites) and education — all the support will be grants rather than loans.

The G-7 finance ministers are from the United States, Britain, Canada, France, Germany, Italy and Japan, and the weekend meeting includes the World Bank, International Monetary Fund ( news - web sites) and Russia, a member of the G-8.

Taylor told reporters at a Washington briefing that the United States believed that global economy, led by a recovery in the United States, was recovering from last year's slowdown.

He said there was room for the Japanese government to do more to improve its growth prospects, repeating a long-standing U.S. suggestion that Japan needed to move more aggressively to deal with bad loans weighing down its banking sector.

Taylor said the G-7 finance ministers would receive an update on the economic crisis in Argentina from IMF Managing Director Horst Koehler.

An IMF team arrived in Buenos Aires Thursday to begin negotiations on new loans to help deal with an economic crisis that forced Argentina to default on dlrs 141 billion in foreign debt last December.

The finance group also will review progress being made on various proposals to deal with future debt crises, he said.

On development aid, the finance ministers will discuss a new African plan that Canadian Prime Minister Jean Chretien has made a focus of the upcoming summit.

At last year's G-8 summit in Italy, leaders agreed to respond to an initiative by African leaders to set up conditions for stability and good governance. The African nations hope the initiative, called the New Partnership for African Development, will help attract more foreign investment and aid.

The initiative is based on the idea that foreign investment is more effective than direct foreign aid in promoting economic growth needed to combat poverty, AIDS, and other ills.

In another new approach to development aid, the World Bank has selected 23 developing nations to participate in pilot programs aimed at educating millions of poor children around the world.

There are an estimated 113 million children in poor nations — two-thirds of them girls — who do not attend school.

World Bank President James Wolfensohn called on the G-8 leaders to make significant pledges of support at their summit.

Achieving the goal of universal primary education in the developing world by the year 2015 would require an additional dlrs 3 billion in development aid annually over the next 10 years, the World Bank estimates.

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Associated Press economics writer Martin Crutsinger contributed to this report from Washington.

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On the Net:

Canadian Department of Finance, http://www.fin.gc.ca

World Bank: http://www.worldbank.org

International Monetary Fund: http://www.imf.org

 


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