Global Policy Forum

By Christine Seib

The Times Britain caved in yesterday on its threat to withhold £50 million in funding from the World Bank, after Hilary Benn, the International Development Secretary, said that his concerns over aid conditions had been eased. However, international aid agencies criticised the decision to back down as "premature" and called for Britain to be tougher in the next round of International Development Association (IDA) funding, to be held next year.

Patrick Watt, of Action Aid, said: "Benn's strategy seems to be working in shifting the bank's position. We'd like to see a repeat of this tactic in conjunction with other like-minded countries, such as Norway, the Netherlands and Ireland, at the IDA talks."

In September Mr Benn made a public attack on Paul Wolfowitz's leadership of the World Bank. He claimed that as part of Mr Wolfowitz's fight against corruption, the bank was putting too many stringent conditions on aid payments for poor countries. The conditions put pressure on countries to pursue privatisation and trade liberalisation, Mr Benn said.

In response to Britain's criticism, the bank promised a progress report on how its conditions were being implemented. The report was published last month. Mr Watt said that although Mr Wolfowitz had toned down the rhetoric on conditionality, "the World Bank's progress report leaves many unanswered questions".

However, Mr Benn said yesterday that, having considered the report, he felt that welcome progress had been made by the World Bank in reducing the use of "economic policy conditionality". He added: "But — as the report recognises — the bank needs to go further in ensuring that its conditions do not impose specific economic policies on poor countries, and that's why I've asked for a further report on progress in twelve months' time. This issue will be a central consideration in our negotiations next year for the next round of IDA funding."

Mr Wolfowitz, a former US Defence Secretary who took over as President of the World Bank 18 months ago, had suspended multimillion-dollar loans to countries including Chad, India, Ethiopia and Bangladesh after they contravened conditions on aid. Critics accused the president of undermining the bank's primary purpose of eliminating global proverty by trying to force Western economic and political models on Africa.

At a meeting of the World Bank in September, Mr Benn said that he would hold back £50 million of the £1.3 billion UK payment, promised at IDA talks in 2004, until the World Bank addressed worries over its aggressive anti-graft campaign.

The IDA funds the poorest countries with loans. Repayment often comes to less than the value of the loan. Britain is the second-biggest contributor to the IDA, after America. World Bank spokesmen did not return calls yesterday.

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