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World Bank lobbies for more money despite Donald Trump budget cuts

LiveMint logoLiveMint 22-03-2017 Andrew Mayeda

Washington/Johannesberg: World Bank President Jim Yong-kim said it’s important the US vote to replenish the development lender’s capital even after President Donald Trump proposed slashing foreign aid.

“For us to not get a capital increase and step back from middle-income countries, we think will be bad for the world,” Kim said in an interview in Tanzania’s commercial capital, Dar es Salaam. “For emerging market economies, generally, getting access to capital has been difficult.”

As part of his “America First” doctrine, Trump has vowed to prioritize the interests of US workers and families in decisions on foreign policy. Trump’s first budget outline released last week proposed deep cuts to programs that send US money to other countries or involve international institutions such as the United Nations.

The White House also proposed cutting funding for multilateral development lenders such as the World Bank by $650 million over three years. The US committed $2.3 billion to development banks in fiscal 2016, including $1.2 billion for the World Bank fund for the world’s poorest nations. Congress must pass legislation on federal spending plans, meaning Trump’s proposals are the start of the process and may never become reality.

The World Bank was created during the Second World War to finance the reconstruction of Europe. It has evolved into a lender for emerging markets and developing countries, with a goal of eradicating extreme poverty by 2030.

Fund boost

Trump’s distaste for financing other countries complicates the World Bank’s efforts to convince its 189 shareholder countries to approve a general capital increase. Kim said the increase is needed to bolster the bank’s main fund, which lends to middle-income nations such as India and China, as well as a fund that focuses on private-sector projects.

Kim said he has told Trump and treasury secretary Steven Mnuchin that the World Bank is a “very important institution for the world, including the United States.”

He suggested emerging markets may struggle to raise capital as the US Federal Reserve lifts interest rates. “If we have two or three interest-rate rises and yields on US Treasuries go up, that’s always bad for emerging market economies,” Kim said.

World Bank lending commitments rose to $61.2 billion in the year ended 30 June, up from $55.7 billion the year before. Lending by the bank’s core fund for middle-income countries surged to $29.7 billion, from $23.5 billion.

Even with Trump’s proposed funding reductions for multilateral lenders, the US will still be the top contributor to the World Bank, the Treasury said in a response to questions on Tuesday.

“Secretary Mnuchin and Dr. Kim have spoken about the important role that the World Bank can play in building a more secure and prosperous world,” according to the emailed statement. “The shareholders of the World Bank are just starting a process to assess the bank’s capital needs, and US funding for any capital increase would have to be considered as part of future budget requests.”

The Washington-based development bank last received a general capital increase in 2010, when it raised $86 billion, including $5.1 billion in up-front capital. If the bank’s capital doesn’t increase, it may have to raise more money through bond sales.

Board decision

Any capital increase would have to be approved by the bank’s executive board, where the US holds about a 16% voting share, as the institution’s biggest shareholder.

“We will make the case,” Kim said. “At the end of the day it’s the board that decides.”

Boosting the World Bank’s capital will be a hard sell within the Trump administration, and other nations may be reluctant to put up capital without the world’s biggest economy, said Scott Morris, a senior fellow at the Center for Global Development in Washington.

Without strong US support, the development lender may have to curb its ambitions, said Morris, who led engagement with the World Bank as a senior Treasury official under President Barack Obama. “They’re facing a huge amount of uncertainty,” he said. Bloomberg

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