By Josh Zumbrun and Stephen Fidler
WASHINGTON -- The Trump administration is backing a $13 billion
increase in funding for the World Bank, putting aside its
skepticism of the big government-backed institutions that manage
the global economy, in part because it wants the World Bank as a
counterweight to China's growing international influence.
The change, which will allow the bank to increase lending to
poor-country clients, comes after what European and other officials
described as difficult negotiations over tough terms demanded by
the U.S. One official described the agreement as "touch and go,"
and many doubted it would happen.
U.S. Treasury Secretary Steven Mnuchin said Saturday that the
increase in funding would allow the World Bank to shift resources
to poorer borrowers and away from countries better able to finance
their own development objectives.
"There are reforms that they're making that we think are quite
significant along with the increased funding request," Mr. Mnuchin
told a news conference.
The capital boost could help make it a stronger counterweight to
Chinese-lending, including from the Beijing-led Asian
Infrastructure Investment Bank, which is growing rapidly.
President Donald Trump has repeatedly signaled a suspicion of
multilateral institutions and initiatives, including the World
Trade Organization which attempts to settle disputes in global
trade.
The U.S. Treasury had been sharply critical of the bank. The
World Bank had wanted to move forward with the increase last year,
but the U.S. blocked it, shifting the discussion into 2018. The
U.S. is the only country with veto power over any changes in bank
structure, so funding increases cannot proceed without Washington's
support.
Treasury's Undersecretary for International Affairs David
Malpass said in congressional testimony last November that the role
of multilateral development banks, including the World Bank, needed
"to change dramatically" and that he had "major problems" with
countries continuing to borrow from the World Bank as incomes rose,
singling out China.
The shift to U.S. support for more funding at the Bank took some
European governments by surprise, said Suma Chakrabarti, president
of the European Bank for Reconstruction and Development, a
London-based multilateral bank lending in Europe, the Middle East
and North Africa. He said in an interview Thursday that the capital
increase is "very good news," since it would help efforts to reduce
global poverty.
The U.S. support came with strings attached. Growth in World
Bank salaries will be capped. Changes will shift lending practices
for nations classified as upper-middle income, currently defined as
nations with per capita incomes between about $4,000 and $12,000.
Countries receiving loans from the World Bank "graduate" to less
subsidized loans as their income levels rise, and under the new
round of changes, those rates will rise more quickly, and such
countries will graduate faster.
"We will lend more over time to the lower-middle income
countries," World Bank President Jim Yong Kim said at a press
briefing this week, specifying that "there's nothing in the
agreement that targets any specific country."
Other nations in the upper-middle income group include Brazil,
Argentina and Turkey. Though countries may borrow less as they
become wealthier, their voting shares across the World Bank will
also rise under the proposal, allowing officials there to present
it as a sign of progress.
"It is useful to Argentina to access the loan portfolio of the
World Bank but if the international community says Argentina has
graduated it means something good has happened in Argentina,"
Nicolás Dujovne, the finance minister of Argentina, said on
Wednesday. He added, "we would prefer to see the lending increased
and to receive more funding from the World Bank."
Mr. Mnuchin said he would work with Congress to secure approval
for the U.S. contribution, a step that has in the past proved
challenging. After the Obama administration agreed to increase
funding for the International Monetary Fund in 2010 it took five
years to win congressional support.
"No member of Congress is going to campaign at home on
supporting a World Bank capital increase," said Scott Morris, a
senior fellow at the Center for Global Development, an
international think tank. "They don't do it eagerly. It takes some
convincing there."
The U.S. has made other shifts in its international approach,
citing the need to counter China. The Trump administration's first
budget proposed eliminating the Overseas Private Investment Corp.,
which provides financing and political risk insurance to companies
investing in emerging markets. In this year's budget, the it
pivoted, proposing increasing funding for OPIC as well as
supporting a piece of legislation that would give OPIC broader
investment powers.
"We lack the modern, 21st century mechanisms needed to either
compete with countries like China, or cooperate with allies like
the United Kingdom, Germany, and Japan, which are investing heavily
in emerging markets," OPIC President Ray Washburne testified to
Congress earlier this month.
In both cases, the administration had an initial impulse to
disengage, but shifted course after realizing China would fill a
void if the U.S. were to retreat.
The U.S. is the largest and most influential shareholder in the
World Bank and the IMF, and was the chief architect of both
institutions created in the aftermath of World War II.
"The U.S. administration comes to the multilateral institutions
with a heavy degree of skepticism," U.K. Chancellor of the
Exchequer Philip Hammond told reporters on Friday.
He said it was up to countries like the U.K. and others to
persuade Washington that strengthening the multilateral
institutions underpinned the international system and benefited the
U.S.
"I think we are all delighted that the U.S. has shown that
despite a tough rhetoric...when a sensible deal comes forward, the
U.S. is prepared to step up and join in," Mr. Hammond said.
He credited Mr. Mnuchin as "an important force in shaping the
administration's response" to the capital increase.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Stephen Fidler
at stephen.fidler@wsj.com
(END) Dow Jones Newswires
April 21, 2018 17:12 ET (21:12 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.