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. Last Updated: 07/27/2016

World Bank Urges Not to Overlend

ReutersWorld Bank President Paul Wolfowitz, left, talking to Kudrin during a news conference in St. Petersburg on Friday.
ST. PETERSBURG -- Fast-growing emerging nations should not lead poor countries into a new vicious spiral of indebtedness by over-lending, World Bank president Paul Wolfowitz urged Friday.

Wolfowitz made his remarks as Russia pledged funds to support World Bank aid projects in sub-Saharan Africa.

"We hope that new development partners will work together with the old to satisfy the real needs of the population, so that money is used for development and not for pursuing political needs," Wolfowitz told reporters in St. Petersburg on the sidelines of a meeting between Group of Eight finance ministers.

Under a plan due to take effect July 1, World Bank member nations have agreed to write off $37 billion owed by the poorest countries over the next 40 years. But concern has grown that countries like China are stepping up lending and aid to those same poor countries, often with strings attached, potentially tipping recipients back into a debt trap.

"Another challenge is that donors, and I am talking about old donors as well, do not pursue lending in such a way that these countries become heavily indebted again," Wolfowitz said.

Finance Minister Alexei Kudrin said Russia would write off $688 million owed by African countries in the coming years under the debt-relief initiative.

Of that total, Russia would channel $250 million via a debt-for-development swap to back World Bank projects to help African countries gain access to cheap energy and fight infectious diseases.

Wolfowitz and Kudrin said the World Bank would provide technical assistance to Russia to help establish a national system for development assistance.

Wolfowitz, who has taken a tough line on aid-driven corruption, said it was vital to ensure lending was not used to buy political influence. "During the Cold War era, money was often given not with the development in mind but to support the governments," he said. "It is important to be as clear as possible that there is a real difference between assistance and concessional loans aimed at helping countries develop versus loans given to promote export industries of the donor countries."