The World Bank has driven poor countries "into a ditch" by lending instead of donating funds to fight poverty, US Treasury Secretary Paul H. O'Neill has said.
Lending agencies have "driven them into a ditch" by extending loans that borrowing nations have trouble repaying, O'Neill told the International Institute of Economics in Washington on Wednesday. The heavy debt loads, he added, frighten away global investors.
"President Bush has suggested that 50 per cent of the bank's annual outlays in soft loans for the poorest countries should be given as grants. Bank president James Wolfensohn has said this will bankrupt IDA in the long run and strip the bank of its AAA rating in the bond markets," he said.
Canada and Japan have indicated that they would back converting 16 per cent of IDA credits into a grant. The Europeans are prepared to do so only for 10 per cent of the credits.
O'Neill questioned the logic of the European position at the institute and said: "I say the hell with it... Somebody tell me a good reason for 10 per cent."
The argument advanced by Bush and his officials is that it makes more sense to donate money for health, education and sanitation projects than to burden poor countries with debt.
O'Neill said the US has indicated some flexibility in what percentage of aid should be made in the form of grants but said 10 per cent is too low.