Hi Friends and Colleagues,

We have just returned from a 14-day, 4500-mile road trip (DC-Denver-Durango-Santa Fe-DC) in my daughter's BMW. It was an easy drive and a great trip. America is full of amazing and delightful people, with my family and friends foremost amongst them. An abiding impression is that the US needs to ease, regularize, and publicize our immigration stance, so that we can continue to flourish economically and achieve our Manifest Destiny. Below I append a Myers Missile stimulated by a newspaper article I received while away from home.

BUSH GENOA DEVELOPMENT GESTURE: WELL MEANING BUT FLAWED

Robert Myers, August 1, 2001

An article in the July 18, 2001 FINANCIAL TIMES (see this Missile on my web site-www.erols.com/rmyers1) announces President Bush's proposal at the Genoa G-8 summit that up to 50% of annual World Bank (WB) commitments be given as grants rather than subsidized loans. The proposal is flawed, but has much more merit than the criticisms it has drawn. It deserves a better reception. Bush's proposal is stunningly correct as a solution to the excessive indebtedness problem, especially if the grants can be used to reduce economically costly public sector external debt overhangs. Unfortunately, it perpetuates two other problems caused by WB lending. It would maintain the currently EXCESSIVE ANNUAL VOLUMES of WB commitments (about $14B a year). These overwhelm limited local private saving/investment opportunities, lowering rates of return and forcing domestic savers to send savings abroad. In addition, WB subsidized lending GOES TO PUBLIC SECTORS, rather than to private producers/investors. As a result, whether grants or loans, they are wasted or stolen by politicians and civil servants rather than used productively.

Critics, including the WB and several European governments know that the Bush-proposed grants/subsidies (about $7B per year at current commitment levels) would have to appear explicitly in budgets rather than, as now, being implicit and unobservable. Their new visibility would undoubtedly result in demands for reduced appropriations given current WB failure rates. Bush's critics see reduced commitments as bad, since they believe higher WB commitments help governments help the poor. I see smaller WB commitments as helping the poor by reducing financing of public sector excesses, including corruption and predatory behavior, that stifle local private saving/investing initiatives. President Bush's proposal that the WB give grants instead of subsidized loans is superb. He must now supplement it with calls for dramatically lower levels of annual WB commitments and effective targeting of grants as lump-sum subsidies that stimulate local private competitive production and investment.

Here is the FT article:

INTERNATIONAL ECONOMY: Bush seeks overhaul of World Bank loans policy

Financial Times; Jul 18, 2001

By ALAN BEATTIE and RICHARD WOLFFE

President George W. Bush launched an ambitious attempt yesterday to overhaul the World

Bank's funding, proposing to replace up to half the bank's loans with grants to the world's poorest countries. Outlining his agenda for the Group of Eight summit of industrial nations this week in Genoa, Mr Bush said grants were the long-term solution to the debt burden of developing countries.

"Debt relief is really a short-term fix," he said in a speech at the World Bank's headquarters in Washington yesterday. "The proposal today doesn't merely drop the debt, it helps stop the debt. "The proposal will be strongly opposed by European countries and World Bank officials, who argue that it will severely restrict the bank's lending capacity. The UK yesterday signaled that it would object to the US proposal during the Genoa talks. The UK department for development said: "World Bank lending is already highly

concessional. Increasing the grant element would reduce its future capacity to assist poor countries, since lending is partly financed by re-flows on previous credits."

The dispute is likely to drive a wedge between the US and European governments - already at odds over the US rejection of the Kyoto protocol on global warming and on environmental aid to developing countries.

A copy of the draft G8 communique for this weekend's meeting, seen by the Financial Times, shows unresolved tensions. Some countries want a commitment to replenish the Global Environment Facility, a fund to help sustainable energy use in developing countries, with up to Dollars 3bn (Pounds 2.1bn). But the US is believed to oppose any reference to the fund in the communique. The US proposal on World Bank lending is likely to encounter sustained opposition long after Genoa. Many European countries, and most other Group of Seven governments, support, at most, a much smaller grant element of about 10 per cent. The German government told a recent meeting of World Bank donors that it could not go beyond 10 per cent without breaking a promise to its parliament. The strongest supporter outside the US is France, which has been canvassing support for a statement in favour of World Bank grants in Genoa.

World Bank officials estimate that the loss in repayments and revenue would require countries such as the US to double their contributions to the bank in order to maintain its current level of funding. The US has no plans to increase its contribution to the World Bank.