US backs new financing for World Bank
In a step that will benefit many of the world's poorest countries as well as helping to ease the international debt crisis, the United States will begin negotiations to increase its capital commitment to the World Bank. This move comes a week before the annual meeting of the World Bank at which Japan, Germany, and other industrialized countries are expected likewise to announce their support for a capital increase.
Treasury Secretary James Baker III, in announcing the increase on yesterday, said the bank has become a catalyst in seeking economic reform in developing countries. ``The general capital will have to be increased so those countries seeking reforms can continue to be supported,'' Mr. Baker said.
Although Baker would not talk about how much the United States is willing to add to the bank, Barber Conable, the president of the World Bank, stated this summer that the bank would like a $40 billion to $80 billion increase to fund its lending through the 1990s.
For example, if the bank's shareholder nations agree to a $50 billion increase at the annual meeting, the US contribution would amount to about $9 billion. Since only a percentage would be paid-in capital, or an actual cash outlay, Congress would have to fund a $900 million outlay over 7 to 10 years.
Frank Vogl, a World Bank spokesman, said the US action ``is obviously very encouraging.'' Next Tuesday, Mr. Conable is expected to outline his agenda for the World Bank for the next several years. In general terms, Mr. Vogl says, the agenda will include helping the indebted countries and working to alleviate poverty.
The bank has capital and reserves of about $95 billion. It has made loans of about $75 billion. Thus it has about $20 billion of spare loan capacity before it needs more money. This year the bank expects to loan about $14 billion.
The World Bank is primarily designed to make loans to developing nations for specific projects such as dams and highways. Last year, however, 23 percent of its loans were made to help developing nations restructure or reform their economies. This has been a goal of the Reagan administration.
Last year, for example, the World Bank made loans to Morocco to restructure its educational system. Through its lending it also encouraged Mexico, Nigeria, and Argentina to liberalize their trading systems by reducing protectionist tariffs and eliminating subsidies. The loans are closely monitored every three to four months. It is this type of lending toward making developing countries more market-oriented which encouraged the US to increase its commitment to the bank.
Baker stressed that the US commitment to increase the World Bank's capital was not meant to bail out the commercial banks. ``All of the participants have got to do their part,'' he stated.
To increase its funding to the bank, the US will have to consult with Congress. Baker indicated the first new funds to the bank might be committed by September 1988, if negotiations were similar to the last capital increase.
Baker is likely to run into a barrage of criticism by conservatives in Congress. Next Monday, the Cato Institute, a conservative think tank, will release a report that is critical of the bank's lending policies. In an article in the Wall Street Journal, James Bovard, author of the report, says ``every time the bank loudly praises the private sector, it silently damns its own record.'' Mr. Bovard maintains the bank has helped finance the expansion of government power in the third world.
This weekend when the US meets with the other major industrialized nations, it is expected to criticize West Germany for its disappointing economic growth. Administration officials characterized German growth as ``disappointing'' and below expectations. On the other hand, administration officials, speaking on nonattributable basis, praised Japan for the spurt in domestic economic growth.
Other issues likely to arise at the weekend meetings include exchange rates, the world economy, the US trade imbalance and the US trade bill. Administration officials are likely to point out, however, that the US budget deficit is lower than expected.