The World Bank would contribute $3.5 billion (2.5 billion EUR) from its own income to provide grants and credits to a unit of the bank that lends to the world's poorest countries.
The bank's board of directors also decided to simplify and reduce loan charges for 79 creditworthy low- and middle-income countries.
"I am pleased to say the board helped us put our money where our mouth is," said Robert Zoellick, the bank's new president. "This should help us gain momentum as we urge donor countries to increase their commitment" to the International Development Association, a centerpiece bank program that provides interest-free loans to the world's poorest countries, mainly in Africa.
As an example, he said, South Africa has decided to boost its commitment by 30 percent although he did not give the figure.
Zoellick, who took over as head of the bank July 1, is seeking to regain trust, rebuild credibility and mend frayed relations inside the institution as well as with its 185 member countries worldwide.
His predecessor, Paul Wolfowitz, the former U.S. deputy defense secretary, clashed with colleagues inside the bank and with member countries. He resigned in May in an ethics dispute.
Zoellick needs to raise $39 billion (27.5 billion EUR) over the next three years for the bank's development association known as IDA. Major donors such as the United States are hesitating to make new commitments to IDA because they face budget problems or prefer to provide aid for specific projects through their own development agencies.
He said the United States, the bank's largest shareholder, is working through its budget process on a significant increase in its contribution.
Zoellick said China, a recipient of bank loans that has billions in foreign reserves, has been invited to a bank conference later in the year that is to put the final touches on raising money for IDA for the three-year period that starts July 1, 2008.
He said he hopes to have the IDA replenishment completed by the end of 2007 or early next year.
The IDA replenishment talks are the first since the Group of Eight summit in Scotland in 2005 at which world leaders promised to double the amount of aid to sub-Saharan Africa and to cancel the debt of the poorest countries.
The debt cancellation deprived the bank of $12 billion (8.5 billion EUR) in interest and principal payments, and the $3.5 billion (2.5 billion EUR) the bank is providing represents an attempt to make up the shortfall. This is double what the bank gave to the last IDA replenishment and comes from profits made by the bank's private sector arm, the International Finance Corp., and the International Bank for Reconstruction and Development, a bank subsidiary that lends to low- and middle-income countries.
Zoellick said the International Finance Corp. and IDA would work more closely to identify "public-private partnerships in infrastructure, especially in energy and water, agriculture, transportation and telecommunications. These investments can be especially helpful in encouraging regional integration, he said, a priority for many African countries.
Turning to simplification of the World Bank's lending policies, he said he was fulfilling a pledge the bank made to borrowing countries at a meeting in Singapore in 2006.
He said when the bank increased the amount it charged for loans after the Asian financial crisis of the late 1990s, it established a "complex patchwork" that included six elements to determine the cost of a loan.
This has been replaced by a small front-end fee and a reduced interest rate spread.