FROM THE OFFICE OF PUBLIC AFFAIRS

President Bush proposed last summer "that up to 50 percent of the funds provided by the development banks to the poorest countries be provided as grants for education, health, nutrition, water supply, sanitation and other human needs." The recent agreement among G-7 donors achieves the President’s goal. The agreement also takes a major step towards addressing the debt sustainability problem in the poorest countries and, as President Bush noted, the proposal "doesn’t merely drop the debt, it helps stop the debt."

Within the next few weeks, the principle of substantially increased grant financing for the poorest countries will be embodied in an agreement among donors to the thirteenth replenishment of the International Development Association (IDA), the arm of the World Bank that lends to the poorest countries.

As a result of the President’s initiative, IDA – for the first time in its history – will provide grants instead of loans for urgent human needs beyond HIPC debt relief and post-conflict assistance. These results-based grants will be provided based on country performance and commitment to economic reforms. This landmark agreement will mean that:

• IDA will provide nearly 100% of its assistance on grant terms for education, health, nutrition, potable water and sanitation (the key social sectors) in countries whose people live on less than a dollar a day;

• IDA’s assistance for HIV/AIDS will be in grant form for all IDA-only countries;

• All of IDA’s assistance for natural disaster reconstruction will be in grant form; and

• Up to 40% of IDA’s assistance to post-conflict countries will now be delivered on grant terms.

Results Based Lending. The US initiated, and now IDA will establish, a monitoring and evaluation system that measures borrowing countries’ progress against a set of key development indicators. The measurement system serves two important functions to improve development effectiveness: an accountability function to better position IDA to demonstrate more precise results from resources invested, and a learning function to improve project design and direct resources to what works. In recognition of the importance of this initiative, the President’s budget conditioned a portion of US assistance during the second and third years of the replenishment period on satisfactory progress towards select, high-development impact objectives in areas such as health, education and private sector development.

These hallmark reforms are a significant achievement for the poorest countries and fulfill a pledge by President Bush that the U.S. will stand shoulder-to-shoulder with "all nations promoting democratic government and the rule of law so that trade and aid can succeed."