MONTERREY, Mexico?After years of watching economies crash and burn, world leaders are rethinking their lending policies to the developing world.

In the debate at the U.N. Conference on Financing for Development, the United States wants to replace loans with direct handouts. European countries and lending institutions worry the grant system would dry up the existing pool of funds that currently is replenished as countries repay loans.

Last week, President Bush pledged $5 billion in foreign aid, suggesting the money be given away in the form of grants to countries with relatively stable financial and political systems.

European leaders argue the move could eventually drain World Bank as development aid levels are already declining.

Over 171 nations at the conference are discussing how to prevent economic collapses in the developing world, and how to use aid resources more efficiently.