Paul Wolfowitz, head of the bank, took the decision because Chad, by altering an oil revenue law, has breached a 1999 agreement with the bank designed to fight long-term poverty in the country.

He said: "We've been trying for some time to open dialogue with the government of Chad to see if the concerns that they have expressed can be addressed, and regrettably instead of engaging in dialogue, they have proceeded unilaterally."

He did, however, say:
"We haven't given up on dialogue and hope in fact that perhaps if they stop and appreciate how serious the issue is from our point of view and not only from theirs, we can find some common ground."

Expensive experiment

On 29 December Chad's parliament approved legislation to access more of the oil profits from the 1,000-km Chad-Cameroon pipeline, reversing a World Bank-backed law that pledged to save all of the profits for programs for the poor.

It also abolished an oil fund whereby 10% of royalties and revenues would be saved in an overseas fund to fight long-term poverty.

Wolfowitz's decision to halt the loans, including $124 million in undisbursed funds, follows a two-hour telephone call on Thursday with Idriss Deby, the president of Chad, who still has to sign the amendments into law.

Escalating violence

The suspension is a blow for Deby who is struggling with looming presidential elections and increased tensions with neighbouring Sudan, which he accuses of harbouring rebels trying to overthrow him.

Relations between Chad and Sudan
have deteriorated in recent weeks

Chad accused Sudanese militia of a new act of aggression on Friday, saying they carried out three attacks in the east of the country in which nine civilians were killed.

A government statement said: "Sudanese militias attacked the locations of Borota, Ade and Moudaina in the region of Ouaddai yesterday, Thursday, killing nine and injuring three civilians seriously."

Chad declared a "state of war" with Sudan last month after a rebel attack on the border town of Adre claimed by the Rally for Democracy and Freedom (RDL). It has called for the African Union and international community to head off further escalation of the conflict.

In response the Sudanese government accused Chad of attacking an African Union military unit late on Friday, killing one, and of entering Sudanese airspace illegally during the last three days.

On Thursday the United Nations reported a build-up of troops along the border between eastern Chad and Sudan's western Darfur province, saying it was reducing its mission in the region "due to the increasing instability in the affected areas".