No Deal Reached on Proposal to Provide Greater Proportion of World Bank Assistance Through Grants
International financial leaders meeting this weekend failed to reach a compromise on a U.S. proposal to provide a greater proportion of World Bank assistance to developing nations in the form of grants rather than loans, the AP/Philadelphia Inquirer reports (Crutsinger, AP/Philadelphia Inquirer, 4/22). President Bush in July called on the World Bank to provide up to 50% of its financial assistance to developing nations through direct grants instead of loans for needs such as health care and HIV/AIDS efforts (Kaiser Daily HIV/AIDS Report, 7/18). European nations have opposed this proposal, stating that it would deplete the World Bank's resources if developed nations did not significantly increase their foreign aid contributions (AP/Philadelphia Inquirer, 4/22). U.S. Treasury Secretary Paul O'Neill last week proposed a compromise plan in which 21% of World Bank funding would be allocated through grants, but European nations rejected this proposal, "insisting" that no more than 18% of World Bank funding be grants (Dow Jones Capital Markets Report, 4/21). O'Neill expressed "frustration" that a compromise was not reached, stating that there "had been general agreement" that foreign aid designated for purposes such as fighting HIV/AIDS and boosting education in developing nations should be given in the form of grants. "So I said, 'Fine, how about if we agree all these other categories we've agreed and you take HIV/AIDS grants out of the covered category and you go explain to the world why you want to make them a loan instead of a grant,'" O'Neill said (Somerville, Reuters, 4/18).
The World Bank has said that it would lose $100 billion over the next 40 years if it replaced 50% of its International Development Association loans with grants, but the U.S. General Accounting Office disputes this figure. In a study released last week, the GAO estimated that replacing half of all IDA loans with grants would cost the World Bank less than $15.6 billion, an amount that could be offset by "minimal increases" in contributions by wealthy nations (Dow Jones Capital Market Report, 4/21). The Bush administration last month proposed boosting foreign aid by $10 billion and IDA funding by 18% over fiscal years 2004 to 2006 (AP/Philadelphia Inquirer, 4/22). A number of lawmakers, AIDS groups and African groups have called on international lending institutions to forgive the debts of developing nations, stating that debt reduction would help the countries allocate more funding toward HIV/AIDS and other health initiatives. However, Bush has said that providing grants instead of loans would help developing countries more than debt relief, which he called a "short-term fix" (Kaiser Daily HIV/AIDS Report, 7/18).