World Bank faces funding clash

04/10/2009 | Taimur Ahmad, Anthony Rowley

The World Bank’s Development Committee, which meets in Istanbul tomorrow, faces urgent pleas for more resources on one hand and threats by US politicians to block funding on the other.

The Bank’s president Robert Zoellick has warned of “serious constraints” on resources by mid 2010 as it continues to push out huge volumes of lending to emerging markets in the wake of the financial crisis.

Bank lending soared to around $33 billion in the financial year ended 30 June 2009, three times higher than in the previous year. It is expected to reach $40 billion in the current financial year.

The Bank’s shareholders last year asked it to push out $100 billion to crisis-hit countries over a three-year period, but Zoellick said this figure will probably be exceeded by 2011.

But calls for more cash face obstruction in the US, the largest shareholder, where Congressmen are urging that payments be withheld until higher transparency standards are implemented.

Barney Frank, chairman of the powerful House Financial Services committee, said last month that it would not convene to approve funding “unless there are improvements”.

Frank told Emerging Markets in an interview that he especially favours the Bank revising further its Doing Business Report. This annual ranking of countries by their business environment is regarded by opponents as slanted in favour of anti-labour, anti-welfare practices.

The report is “a terrible reactionary influence”, Frank said. Asked whether the stance might not hamper the Bank’s work, at a time when the financial crisis has exacerbated world poverty, he shot back: “I think we enhance the bank by what we’re doing.

“Having the Bank open up enhances its effectiveness. If you don’t know the impact of what you’re doing, you’re more likely to do wrong things.”

In Istanbul this weekend, Zoellick says he saw “no obstacle” from Congress, but acknowledged that “all countries are under budget strain and this is not an easy time to be asking for [more money].”

Among the funding possibilities are a Special Capital Increase or a further General Capital Increase for the Bank, Zoellick said. The Bank’s loans-to-capital ratio could also come under scrutiny. “It all depends on how close to our shareholders want to push us to the edge.”

An increase in loan pricing has already been put in place, and the Bank is also looking to leverage some of its capital that is paid in, in the form of local currencies.

Zoellick added in this context that he had advocated that developing countries as whole should control “over 50%” of World Bank shareholdings. The G20 group of advanced and emerging economies has also proposed that this ratio should be 47%, he added.

Finance ministers from the G24 group of developing countries, which speaks for borrowers from the World Bank, noted yesterday that “current expectations for crisis lending [by the Bank] are now beyond the capacity” of its main lending arm, the IBRD, and that its private sector arm, the IFC was also up against resources restraints.

The ministers called for an “early decision on capital adequacy of IBRD and IFC to ensure that the Bank Group can respond adequately to demand both in the crisis recovery and beyond.” The injection of capital could be done through a combination of a selective and general capital increase, they suggested.

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