On the surface, the idea of replacing World Bank loans with outright grants sounds an attractive idea for poor countries. After all, the debt burden suffered by developing countries has been a real barrier to economic growth.
So why do most of the advanced economies object to the US plan to replace up to half of World Bank loans with grants? The problem is many suspect the US grant plan would end up starving the World Bank of funds, since they would have no loan repayments to replenish capital.
According to the Financial Times, the US administration is quietly lobbying non-governmental organisations (strange bedfellows indeed) to change foreign government minds. It looks as though they are getting a fairly cold response: “The problem with the US is that they never put their money where their mouth is,” says Kevin Watkins from Oxfam.