Ministers warn poor states not to pile up new debt

SINGAPORE, Sep 18 (Reuters) Poor countries that have had their debts written off must beware of borrowing so much new money that they plunge back into crisis, finance ministers warned today.

Ministers are concerned that a new breed of creditor governments, particularly China, is extending loans on commercial terms to impoverished nations, blunting the benefit of writing off tens of billions of dollars of old debt.

''We cautioned against excessive borrowing after the relief, which may lead to the re-emergence of debt distress,'' the Development Committee of the World Bank and International Monetary Fund said in a communique.

US Treasury Secretary Henry Paulson said urgent action was needed to stop an ''irresponsible'' new wave of lending to the developing world.

''We are already receiving anecdotal evidence of creditors providing large loans, the terms of which are unknown, to countries that have recently received debt relief,'' Paulson told the committee.

''We need effective incentives or penalties to deter irresponsible borrowing or lending,'' he said. ''This is an urgent task that requires our joint attention.'' But African ministers argued they were turning to lenders like China because rich nations were not delivering the aid they promised.

''We don't only have to fight poverty, we have to develop our countries,'' Ali Zeine Lamine, economy and finance minister for Niger, told a news conference. ''There is infrastructure to be built and that is the kind of things that need to be done otherwise we will never come out of the hole,'' he added.

He said African countries needed to be careful not to fall into the trap of the ''merchants of financing''.

''We've realised for some time now there are a number of intermediaries, or banks, that are proposing loans at market rates, and sometimes at usurious rates, and I think provisions should be taken to protect our countries,'' Zeine said. ''Thanks to the vigilence of our officials we have carefully avoided them.'' Ghana's finance minister, Kwadwo Baah-Wiredu, said his country had benefited from Chinese investments since the 1960's.

''If we feel that the terms and conditions under which loans and grants are being offered by China and India, all we have to do is to take the (World Bank) conditions on concessionary loans and then measure what are the divisions,'' he said.

World Bank President Paul Wolfowitz said it was wrong to focus only on China.

''There is a real problem here and I think it is wrong to focus on one particular country,'' he said in Singapore.

''The challenge is how to make sure that these countries that were heavily indebted and suddenly get large debt relief don't go turn around and borrow so imprudently that we have heavily indebted poor countries all over again in a few year,'' he added.

Wolfowitz said the problem was not that all borrowing is bad, particularly if countries used the loans for productive investments to increase growth.

''The key here is to focus at the country level and sharing information with the country and all the lenders as to who is lending what on what terms, and what is generally viewed as a sustainable debt burden,'' he added.

But Wolfowitz stressed that donors needed to make good on promises of aid that would give countries adequate levels of investment without going to borrow heavily.

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