The Government is set to attract some criticism next week for allocating £7 million (€9 million) to an International Monetary Fund (IMF) programme condemned by Fianna Fail two years ago. Aid agencies and opposition politicians last night said there was no justification for the switch in policy, but Department of Finance officials said it was important the State participated in the scheme.

The row centres on the Enhanced Structural Adjustment Facility (ESAF), set up by the IMF in 1987 to make low-interest loans to the world's most debt-laden, poorest, developing countries. But groups such as Concern and Oxfam say that in reality, the IMF imposes stringent implementation conditions and repayment schedules, often worsening poverty.

The Republic never paid any money to fund ESAF, and in 1996 the then Minister for Finance, Mr Ruari Quinn, overrode a proposal from Departmental officials to contribute.

During the last General Election, Oxfam sought and published the views of the main political parties on the issue - all said they would not contribute to ESAF.

Fianna Fail said: "We will continue to withhold funds from ESAF, pending reform of the IMF, which we believe is very important as a policy issue. The IMF must undertake a comprehensive debt-relief programme, which must include debt forgiveness, particularly for severely indebted, low-income countries."

Last night the Labour Party spokesman for Finance, Mr Derek McDowell, said ESAF inevitably involves severe cutbacks in the social programmes of the poorest countries of the world, and called for a reform of the IMF.

Mr McDowell said he would bring an amendment scrapping the funding for ESAF before the Dail when the Bretton Woods Agreements Bill comes up next week. The Bill provides £7 million for the scheme.

Mr Michael O'Brien, of Concern, said aid agencies had already been disappointed by the Government's apparent move towards setting a fixed sum for foreign aid contributions and away from the United Nations' target of 0.7 per cent of each developed country's GNP.

Officials at the Department of Finance said last night that, while there would be no overnight changes at ESAF, reform of the scheme was taking place. They pointed out that developing countries, led by Uganda, had themselves recently called on industrialised nations to contribute to ESAF.

Earlier this week, the German Chancellor, Mr Gerhard Schroder unveiled a new debt-forgiveness programme which would include ESAF as part of its implementation. He said he would try to persuade other members of the G8 to adopt his approach.