WASHINGTON, March 15: US President George Bush has proposed a three-year, $5-billion increase in US foreign aid beginning from the year 2004, but made it contingent on the recipient countries undertaking economic, political and social reforms.

Mr Bush outlined the proposal in a speech on Thursday afternoon at the Inter-American Development Bank after months of arguing against increased levels of aid on the ground that the money was not properly utilized.

The change in course was immediately welcomed by World Bank President James Wolfensohn, although it fell short of his demand that developed countries should double aid to poor countries.

In his speech, Mr Bush said the promised $5 billion would go into a new Millennium Challenge Account, and the money would be given to countries that lived by three “broad standards” — “ruling justly, investing in their people, and encouraging economic freedom”.

The new effort is seen as linked to the debate, intensified since Sept 11, on causes that lead to frustration and give rise to extreme trends. Mr Bush said poverty did not cause terrorism, but “persistent poverty and oppression can lead to hopelessness and despair. And when governments fail to meet the most basic needs of their people, these failed states can become havens for terror”.

He said the growing divide between wealth and poverty was a source of instability and must be confronted. “We must include every African, every Asian, every Latin American, every Muslim, in an expanding circle of development.”

The criteria for eligibility to receive the new funds were being worked out, senior administration officials later said at a background briefing. The officials emphasized that the millennium account should be seen as a kind of a bonus pool that would be used to reward nations that demonstrated good policies in governance, education and healthcare priorities, and promoting entrepreneurship.

Asked whether these standards of good governance, human rights and policy reforms would apply also to Pakistan, Uzbekistan and Tajikistan which had provided space for US troops in the campaign against terrorism, the senior officials said any developing country could compete for the funds by putting in place “the right policies” and “making the right choices”.