Bush accepts link between poverty and terrorism

President George Bush called for a "compact for development" yesterday, offering a big increase in aid to poorer countries if they opened their markets, rooted out corruption and promoted democracy.

Addressing the United Nations development conference in the Mexican city of Monterrey, Mr Bush announced a 50 per cent increase in annual US aid to $15bn (£10.5bn) by 2006, matching a substantial boost in assistance recently agreed by the European Union.

"Major progress is within reach," he declared. But this would require change from what he called, "a failed status quo". For decades, he said, "the success of development aid has been measured only by resources spent, not by the results achieved."

Mr Bush's speech was greeted with, at best, polite applause. But it not only represents a notable change of heart by the US, hitherto one of the world's stingiest aid donors, it also reinforces an emerging "Monterrey consensus" that the rich world must be more generous – but only where its aid delivers results.

In future, tougher criteria will be essential. "When nations close their markets and opportunity is hoarded by a privileged few, no amount of development aid is ever enough," said the President. The rich world, must tie greater aid to political, legal and economic reforms. "By insisting on reform, we do the work of compassion."

The Monterrey gathering, originally intended as a follow-up to the rich countries' Millennium pledge to halve extreme poverty levels by 2015, has been given new impetus by the 11 September attacks. These brought home, not least to the US, the link between poverty and the terrorism which is so easily bred by economic and social despair.

Mr Bush acknowledged the link yesterday, speaking of, "a titanic struggle in which the stakes could not be higher". And, he warned, "poverty and hopelessness, lack of education and failed government ... often allow conditions that terrorists can seize".

But Washington's message is also that freer trade, even more than aid, is the key to eradicating global poverty – notwithstanding the fact that the US has just enraged its foreign partners and contradicted its own free-trade beliefs by imposing swingeing tariffs on imported steel.

Mr Bush said that while aid flows totalled $50bn (£35bn) a year, private direct investment in the Third World was four times as large, while international trade involving the developing world ran at $2,300bn annually. A new global trade pact "could lift 300 million lives out of poverty," he added.

But the new assistance from Europe and the US still falls well short of what international aid groups, as well as Britain and other countries, are urging. They insist that aid must be doubled to $100bn a year if the 2015 goal is to be met.

A further clash was simmering between Britain and the US over how aid should be disbursed. Mr Bush reiterated Washington's desire to put the emphasis on grants, "rather than loans which can never be repaid". This idea is vehemently opposed by Britain and its EU partners, in an argument which is blocking a deal to replenish the resources of the International Development Association, the World Bank agency for helping the world's poorest countries. Clare Short, the Development Secretary, has floated a compromise proposal, only to have it dismissed as "stupid" by Paul O'Neill, the US Treasury Secretary.

Earlier, leaders of poor nations and international officials had drawn an even more direct link between poverty and terrorism in their pleadings to the rich world to do more.

More than ever, speaker after speaker insisted, global security depended on bringing relief to the desperately poor – the 1.2 billion people who live in what is officially defined as "extreme poverty," on incomes of $1 a day or less. "In the wake of 11 September, we will forcefully demand that development, peace and security are inseparable," Han Seung-soo, the President of the UN General Assembly, said. He described the world's poorest regions as "a breeding ground for violence and despair."

Making the same connection was President Alejandro Toledo of Peru, looking weary hours after a car bomb killed nine people in Lima – where Mr Bush will be today.

"To speak of development is to speak also of a strong and determined fight against terrorism," he said.

The conference is due to end with the proclamation of a consensus that rich nations should increase development aid, while poor nations must use these funds more efficiently.

One leader who will not be doing so is Cuba's President Fidel Castro. In a brief but savage address on Thursday, he lambasted the rich world for imposing conditions on the poor. He left shortly after.