The World Banks largest donor countries yesterday gave
it six months to carry out reforms of the way it does business,
ahead of a final decision on whether to agree to the first
capital increase in 20 years.
The Development Committee of 24 finance ministers who
oversee the bank yesterday called for a report on options for
recapitalization to be produced by the Spring Meetings in 2010
for a decision.
The bank yesterday proposed a capital increase of between $3
billion and $5 billion for the International Bank for
Reconstruction and Development, its lending arm for emerging
and credit-worthy middle-income countries.
It has also indicated it will call for a replenishment of
the resources of the International Development Association, the
division that lends to the worlds poorest countries, at a
review in November.
However the UK government, the biggest donor to IDA, has
made it clear that it might boycott any capital increase unless
the bank improves the speed of its aid operations.
Senior US politician Barney Frank has threatened to withhold
the USs contribution pending reform of its
accountability. France and Italy have also voiced
Agustin Carstens, the Mexican finance minister and chair of
the committee, told Emerging Markets that there was a
strong case to recapitalise the World Bank in the
face of heavy demand for loans from affected countries.
Some countries recognise that a capital increase would
make sense, he said, but see this as a good
opportunity to do some reforms of this institution, in a way
that makes sure taxpayers money is well spent.
The World Bank is more than ready and prepared to raise
that reform process provided that it can move on both fronts
quickly because time is of the essence.
The depth of the economic crisis across middle- and
low-income countries has forced the IBRD to triple its
commitments to $33 billion in the year to June while IDAs
hit a record high of $14 billion.
The Bank expects to provide a total of $100 billion between
2008 and 2010, which officials say will put the banks
capital base under pressure.
Robert Zoellick, the World Banks president, said:
We know that it is going to be natural as we work with
shareholder countries, that they are going to have aspects that
they want to change [in] the nature of the Bank. We are in the
world of politics here.
He said that Australia, the Netherlands, Spain, Germany and
Greece had lent their support to the Bank, while developing
countries had sent a strong message of the need to
be prepared for uncertainty in 2010.
So what this meeting does by giving a hard decision
point [is] we will be able to move beyond reviews and studies
and try to work through these issues.
The proposed increase of $3-5 billion is relatively small
because the Bank has historically been able to use its AAA
credit rating to raise leveraged loans. The IBRD has already
raised the cost of its loans to middle income countries by 0.2%
to increase the amount of money it can pass on to IDA.
The committee also backed a proposal by the G20 to shift
voting power in the bank by at least 3% to developing countries
from rich nations to give them more say in the global
institution. The communique said it was important to move
towards equitable voting power in the World Bank over