Fast-growing emerging nations should not lead poor countries into a new vicious spiral of indebtedness by over-lending, World Bank head Paul Wolfowitz urged on Friday.
Wolfowitz, in Russia for a meeting of finance ministers from the Group of Eight nations, made his remarks as Russia pledged funds to support World Bank aid projects in Sub-Saharan Africa.
"We hope that new development partners will work together with the old to satisfy the real needs of the population, so that money is used for development and not for pursuing political needs," Wolfowitz told reporters in St Petersburg.
Under a plan due to take effect on July 1, World Bank member nations have agreed to write off $37 billion owed by the poorest countries over the next 40 years.
But concern has grown that countries like China are stepping up lending and aid to those same poor countries, often with strings attached, potentially tipping recipients back into a debt trap.
"Another challenge is that donors, and I am talking about old donors as well, do not pursue lending in such a way that these countries become heavily indebted again," Wolfowitz said.
Finance Minister Alexei Kudrin said G8 host Russia would write off $688 million owed by African countries in the coming years under the debt relief initiative.
Of that total, Russia would channel $250 million via a debt-for-development swap to back World Bank projects to help African countries gain access to cheap energy and fight infectious diseases.
"This shows that we are entering a new partnership," Kudrin said. "Russia is becoming more active." Kudrin added that G8 finance ministers would issue a separate statement on Saturday on poverty and access to energy resources, in addition to its closing communique.
The main communique will address economic "imbalances" - policy jargon for the US current account deficit and Chinese trade surplus - according to a draft text seen by Reuters.
In addition to the G8 - the United States, Japan, Germany, Britain, France, Italy and Canada - China, Brazil, India, Australia, South Korea and Nigeria will take part in a session of "outreach" talks on Saturday. Wolfowitz and Kudrin said the World Bank would provide technical assistance to Russia to help establish a national system for development assistance.
That would mark a break from Russia's Soviet past, when Moscow lent to Third World nations to finance arms exports as it waged a campaign for global influence against the United States. Now Russia is flush with oil revenues and, in addition to pushing to repay its own debts early, Moscow has signed up for Paris Club debt write-off initiatives.
Russia also hopes to pre-pay $12 billion it owes to the Paris Club, but Kudrin expected no breakthrough in St Petersburg ahead of an expected deal at the lender group's 50th anniversary meeting in mid-June. Wolfowitz, who has taken a tough line on aid-driven corruption, said it was vital to ensure lending was not used to buy political influence. "During the Cold War era, money was often given not with the development in mind but to support the governments," he said.
"It is important to be as clear as possible that there is a real difference between assistance and concessional loans aimed at helping countries develop versus loans given to promote export industries of the donor countries."
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