By Steve Schifferes BBC News Online economics reporter

The UK's International Development Secretary, Clare Short, has launched a strong attack on US plans for aid to poor countries ahead of an international summit in Mexico.

Clare Short: US plans would 'wreck' World Bank

Ms Short told BBC News Online that a US plan to convert aid payments into grants "lots of people say is populist grandstanding" and that it would "wreck" the World Bank's lending programmes to the world's poorest countries.

The criticism comes as the European Union hopes to put pressure on the US to increase the volume of foreign aid at the forthcoming Monterrey development summit.

To make progress, we must encourage nations and leaders to walk the hard road of political, legal and economic reform

US President George W Bush

Ms Short said that the UK had helped the EU to reach agreement on a $7bn boost to its own aid budgets by 2006.

Under the deal, EU countries have pledged to increase the amount of its foreign aid as a proportion of GDP to 0.39%, although individual countries will not be required to reach that target.

Meanwhile, President Bush has offered a $5bn boost in the US foreign aid budget from 2004, if developing countries pledge to respect human rights and root out corruption.

"To make progress, we must encourage nations and leaders to walk the hard road of political, legal and economic reform so all their people can benefit," he told Latin American leaders.

Ms Short said she welcomed the pledge of additional aid from the world's rich countries.

But the row over the future approach to aid threatens to overshadow the positive message world leaders are hoping to send to developing countries, after years of cuts to aid budgets.

Deeds, not words

The Monterrey summit on financing for development, which opens on Monday, aims at providing the funds to meet the ambitious development goals agreed by the UN - including cutting world poverty in half by 2015, and improving health and education for the poor.

Millennium development goals

50% reduction in people living on $1 per day Primary school for all children 67% reduction in child deaths 75% cut in maternal deaths Halve the number of people without clean water

The World Bank has estimated that to achieve these goals, total aid flows from rich to poor countries need to increase by $40bn-$60bn a year.

Ms Short said she was going to Monterrey to convince the Americans that aid does work, and that it was vital that extra resources were put on the table to encourage reform in developing countries.

In a paper published jointly with the Treasury, her department argues that "as we work together to fight terrorism, we must also work together to address the causes of poverty; not just because to do so is central to peace and security, but because to do so is right."

World Bank row

US Treasury Secretary Paul O'Neill: sceptical of World Bank loans

The UK and other European countries are worried that US Treasury Secretary Paul O'Neill's campaign to convert 50% of all World Bank loans for poor countries into grants could undermine the effectiveness of the world's biggest aid agency, and negate any pledges for more aid.

At present repaid loans are recycled to provide additional aid to poor countries.

With negotiations underway for fresh World Bank funding, Ms Short argues that the resources available to the poor will go further if they borrow the money, and that grants would undermine the whole reform process that has made aid more effective.

But the US claims that too much aid money is wasted by governments, and wants 50% of future World Bank spending to be converted to direct grants to non-governmental organisations.

Trade and aid

Rich countries are also being asked to open their doors to exports from poor countries under a new trade round that was launched last year at Doha in the Gulf state of Qatar.

However, Mike Moore, the director-general of the World Trade Organisation, told the BBC that he did not expect any fresh initiatives on trade at Monterrey.

The WTO is committed to building up the capacity of poor countries to negotiate better trade deals, but still faces a difficult task in convincing the industrial countries to reduce their agricultural subsidies and allow in more developing country products.

Falling commodity prices have cut export incomes in some of the world's poorest countries by 25% - adding to the problems caused by declining aid levels.