From Prof Jeffrey D. Sachs.

Sir, It is amazing how many misconceptions Mr Karl A. Ziegler can crowd into one short letter (March 30). He claims that Lawrence Summers, the US Treasury secretary, "had argued that some loan repayments from stronger developing nations, on non-concessional terms, make it possible for the World Bank to finance a portion of its continuing book of very soft-term, concessional lending to the world's poorest countries." Mr Summers argued no such thing, since it is patently untrue.

The money for concessional lending comes mainly from two sources, donations from the rich countries and repayments of concessional debts by the poorest countries, and a small portion comes from part of the income earned on the World Bank's paid-in capital and retained earnings. Contrary to Mr Ziegler's beliefs, repayments on non-concessional loans do not fund concessional lending. My earlier point (Letters, March 27) stands: when poor-country repayments of debt are used to make new loans to the same countries, little is accomplished other than a shell game.

Mr Ziegler attacks debt cancellation on the grounds that "old loans should have produced earning assets". Yes, indeed, but then the G7 countries should not have lent billions of dollars to dictators like Mobutu or to Nigerian generals, and the World Bank should have had a more effective strategy underpinning its more than $35bn in loans to the highly-indebted poor countries (HIPCs), most of which are now unpayable.

I certainly agree with Mr Ziegler that loans should be well used. Rather we part company on three points. First, when debt service comes at the expense of the most urgent human needs, as is now true in the HIPCs where debt service payments are often much larger than meagre public health expenditures, the debt service should be ended. Second, bad loans have bad lenders as well as bad borrowers. Third, the vast overhang of bad debts from the past should not stand as a fundamental barrier to economic recovery of these societies in the future.

Jeffrey D. Sachs, Director, Center for International Development, Harvard University, 79 JFK Street, Cambridge, MA 02138, US Copyright Financial Times Limited 2000. All Rights Reserved.