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WASHINGTON (AP) – President Bush, previewing this week’s summit in Italy, proposed on Tuesday that the World Bank give grants to the world’s least-developed countries instead of more loans they can’t repay.

Bush also said he would seek a new round of trade liberalization negotiations.

Making his proposals at World Bank headquarters on the eve of his departure, Bush suggested that the bank and other international lending institutions convert up to half of their payments to grants instead of loans. He said the grants should pay for school, health, nutrition, water and sanitation programs.

The World Bank now makes about $15 billion in loans a year, $6 billion in loans to the poorest nations – the ones that would be affected by Bush’s proposal.

“It would be a major step forward,” said Bush, since the money would be going to impoverished nations unable to repay their existing loans.

Although many of the older loans are being forgiven, or being refinanced at lower interest rates, “debt relief is really a short-term fix,” Bush said. “The proposal today doesn’t merely drop the debt, it helps stop the debt.”

Still, Bush may have a hard time selling the plan to allies, since he didn’t come up with a mechanism for raising the extra cash that would be needed to convert loans to grants, and didn’t offer to increase the present $803 million annual U.S. contribution.

The World Bank uses loan repayments to replenish its pool of cash for new loans.

Bush leaves Wednesday for a weeklong trip to London, Genoa, Rome and Kosovo.

In Genoa, he will attend the annual Group of Eight summit of the heads of state of the world’s seven wealthiest industrial democracies – Britain, France, Germany, Japan, Canada, Italy and the United States – and Russia.

Bush told his audience of international aid officials he would press for a new round of global trade talks to “ignite a new era of global economic growth.” A previous attempt toward such a round ended in failure at a World Trade Organization meeting in Seattle in December 1999 that was marred by violent demonstrations.

Such protests have become a fixture of international gatherings. Protesters clashed with police and tear gas wafted through the streets of Quebec City, Canada, earlier this year at a summit attended by Bush and other Western Hemisphere leaders.

“They seek to shut down meetings because they want to shut down free trade,” Bush said in a sharp advance denunciation of possible street demonstrations in Italy.

“I respect the right to peaceful expression, but make no mistake – those who protest free trade are no friends of the poor. Those who protest free trade seek to deny them their best hope for escaping poverty,” Bush said.

Presidential press secretary Ari Fleischer said the administration recognizes that Bush’s proposal for a greater emphasis at the World Bank on grants could hurt the lending institution’s balance sheet. But he said Bush did not intend to seek more U.S. funds from Congress. He noted that the United States is already the largest single contributor to the bank.

World Bank officials estimate that under Bush’s proposal, the United States would have to roughly double its contribution to keep the bank’s aid pool at current levels. But the White House disputed that.

“It won’t affect the World Bank’s cash flow for ten years,” Fleischer said.

By that time, many of the poorer countries will have gotten back on their feet economically, with help of the grants and increased trade opportunities, and will be able to repay some of the outstanding loans, he suggested.

John Taylor, under Treasury secretary for international affairs, said only the poorest countries would qualify for the grants and that other loan programs would be unaffected.

“The hope is that this is going to be a more effective way to increase productivity growth, alleviate poverty and that people who are the donors – the people who are donating the money – will feel they are getting something for their money,” Taylor said.

The idea of converting World Bank loans to grants is one of the recommendations made by a blue-ribbon panel chaired by Alan Meltzer, a professor at Carnegie Mellon University in Pittsburgh, and endorsed by conservative Republican leaders in Congress.

Many of the suggestions in Bush’s speech have been pushed at the World Bank by Treasury Secretary Paul O’Neill, who has made changes at both the World Bank and the International Monetary Fund a top priority.

Copyright © 2001, Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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