WASHINGTON - Poor countries might need increased grants and an end to lending conditions imposed by public lenders like the World Bank and IMF if a proposal to cancel their debts is to really work towards ending poverty, say analysts.

The United States, the most powerful of the Group of Seven (G7) most industrialised countries that control Third World debt and whose governments dominate the executive boards of public lenders, said publicly for the first time Thursday that it is pushing for expanded debt relief for poor countries.

”Grants and debt relief must be significantly increased -- we are considering more options to do so, including those that would provide up to 100 percent debt relief and grants from the international financial institutions,” U.S. Treasury Secretary John Snow said in Washington.

Snow was to chair meetings Friday of the finance ministers and central bank chiefs of the G7 countries -- the United States, Italy, France, Germany, Japan, the United Kingdom and Canada.

The officials are meeting in Washington on the sidelines of the IMF (International Monetary Fund and World Bank annual meetings, scheduled to conclude Oct. 3.

Last weekend Britain made a similar call for debt cancellation, which was backed by several international non-governmental organisations (NGOs).

On Thursday World Bank President James Wolfensohn and the bank's sister institution the IMF backed the plan to forgive debt, prompting guarded cheers from development groups and economists who have long campaigned for full debt write-off.

The groups say poor countries pay a staggering 100 million dollars daily to repay debts, money that could be saving lives.

In 2002, developing countries in Africa, Asia-Pacific, Latin America and the Caribbean received 58 billion dollars in loans and development aid, but paid 324 billion dollars to service debts from old loans, according to the World Bank and IMF.

A current programme to ease the burden of those debts, the Heavily Indebted Poor Countries (HIPC) scheme, has run into difficulties.

Under HIPC world leaders pledged to cancel 110 billion dollars of debt, yet less than 36 billion dollars has been cancelled to date under the IMF/World Bank initiative.

While welcoming the governments' public support for debt relief, civil society groups say the issue of economic development runs deeper than debt, and argue that poor nations will also need ”liberation” from the grip of conditions that accompany loans from the bank, IMF and other multilateral lenders.

Those lenders, known as International Financial Institutions (IFIs), often impose policies with their loans that commit borrowing governments to: low inflation; reduced spending; changes in labour laws that weaken workers' rights; privatisation of public institutions and user fees for social services such as water and health care.

Lenders might also insist on poor nations opening their markets to corporate agri-business and cheap food imports, which threaten farmers' livelihoods, as well as mining and other environmentally destructive projects, say watchdog groups.

Such conditions subject the poor to deeper poverty, add the groups, insisting that debt cancellation must occur without piling on additional devastating macroeconomic conditions.

Yet, civil society experts predict that any debt relief will be tied to countries maintaining similar conditions.

”There's no indication this is just going to be free debt cancellation money,” said Rick Rowden of ActionAid. ”They are going to make them continue to adhere to the same low-growth, low inflation and all of these other characteristics of the last 25 years,” he added in an interview.

A report by ActionAid International USA, released Thursday, found that the IMF has become more concerned with keeping inflation low and maintaining ”macroeconomic stability” than with enabling governments in poor countries to save lives affected by the HIV /AIDS pandemic or to achieve comprehensive development.

The report says that because of IMF policy prescriptions that impose limits on public spending in poor countries, more than 4,000 trained nurses and thousands of other health workers in Kenya sit unemployed when they should be working to combat the HIV/AIDS emergency in their country.

ActionAid also cites the example of how the African nation of Uganda, which faces a major AIDS crisis, nearly rejected a 52-million-dollar grant from the Global Fund to Fight AIDS because it sought to stay within the strict budgetary constraints it had agreed to maintain in order to acquire loans from the IMF.

”The IMF's insistence on very low inflation targets must be scrutinised,” said Rowden. ”This issue must be brought into the centre of public debate if countries are ever to be allowed to scale-up public health spending effectively to fight HIV/AIDS.”

Other economists say debt cancellation is a good first step that needs to be complemented with more assistance and grants from rich countries.

”One thing at a time: Let's cancel the debt because it's a necessary step,” said Jeffery Sachs, director of the Earth Institute and a United Nations adviser.

”Cancel the debt, don't solve the general development assistance issues in the next week or two, but do expect that by the time the G8 summit comes next July, we're talking about moving annual development flows up by doubling essentially another 70 billion a year or so during the coming decade,” he added in a telephone conference call with journalists last week.

But the money that poor countries save if they are relieved of their debt burden will not be enough to fulfil their development needs.

”It's still not enough to do what the countries are going to require to meet the MDGs, nor does it bring the rich countries any closer to their pledge of spending 0.7 percent of their GDP (gross domestic product) on foreign aid,” Rowden said.

That aid needs to be tripled in the next several years for those countries to have a chance of reaching the world's development targets, the Millennium Development Goals (MDGs) and of more effectively fighting HIV/AIDS, he added.

The eight Millennium Development Goals (MDGs), agreed to by the world's nations in 2000, include halving extreme poverty and hunger and achieving universal primary education by 2015.

Sachs says that asking poor nations to continue to repay their debts so that the World Bank can loan them the same money again or lend it to another impoverished country ”makes no sense.”

”The only thing that makes sense is the net transfer of resources from rich to poor countries, not the transfer of resources from impoverished countries to other impoverished countries,” he added.

An editorial in the 'Washington Post' on Friday also suggested that debt forgiveness can only work if it is accompanied by more aid.

”The (U.S.) administration should therefore not expect much credit for helping the cause of development unless it couples its debt ideas with a renewed effort to persuade Congress to fund foreign-aid programmes more generously,” it added.

The same sentiment was echoed by Britain's 'Economist' magazine. ”The truth is that poor countries need more resources from the rich,” it said.

”If competition to sound most generous leads rich countries to put more money in the aid pot, then it is worth pursuing. But HIPC debt relief alone is no panacea,” added the magazine.