Panel Urges Support for Poor Countries : Policy: Contribution cuts would be politically, socially risky, joint group of IMF, World Bank says.

From Reuters

A joint panel of the International Monetary Fund and World Bank said Monday that cuts in aid to the world's poorest countries would be politically and socially risky.

In a statement issued after a day of intensive talks, the panel from the two global lending agencies urged countries to honor their commitments to the International Development Assn., the World Bank affiliate that provides interest-free credit to very poor countries.

"The committee recognized that funding reductions facing IDA present a very serious risk to poverty reduction and economic growth in the world's poorest countries," the panel said in a statement.

At a news conference, World Bank President James Wolfensohn said that "a weakened IDA would greatly weaken the possibility of having a stable world."

In a statement issued earlier, he said, "This is a very dangerous moment for IDA--and for multilateralism."

The IDA, an $18-billion pool of funds set aside by various nations for the world's poorest countries, has become a political symbol in the budget battle being waged in the United States between the Clinton Administration and the Republican-controlled Congress.

Wolfensohn called the IDA the "very linchpin" of aid for the world's poor, one that serves as a foundation for other assistance.

His plea for more aid for the poorest nations came after two days of talks that were dominated by discussions of ways to promote growth in industrial and developing countries and better management of volatile currency markets.

The debate over the plight of the poorest has been partly overshadowed by a brewing monetary crisis in Europe.

France was forced to raise interest rates Monday to defend the franc, which has fallen sharply against the German mark on fears that Paris may not be able to cut France's budget deficit enough to meet requirements for a single European currency.

The turmoil comes as global economic policy-makers are gathering for the annual meeting of the IMF and World Bank, which starts today and runs through Thursday.

The United States, faced with criticism over its massive debt, nevertheless made it clear that it will not abandon the IDA.

"Our goal," Treasury Secretary Robert E. Rubin said, "is to make every effort to continue the basic, historic commitment of the United States to IDA, while taking into account in a realistic, pragmatic manner the domestic budgetary and political atmosphere which now exists."

Congress, which holds the purse strings, has said it intends to reduce existing U.S. commitments to the IDA and has emphasized that it will look at any new funding with skepticism.

Some proponents of the lending agencies also fear that if the United States cuts its IDA contributions, other donor countries with budget problems will do likewise.

In remarks to the committee, British Chancellor of the Exchequer Kenneth Clarke said it is vital for major donor countries to replenish the IDA.

"I hope the United States and the other major countries will recognize the need to show leadership and responsibility as they have in the past so that IDA can continue to play its crucial role in supporting poverty reduction," he said.

His view was echoed in the panel's statement. "Ministers agreed on the importance of a significant replenishment of IDA," it said.

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