Washington (AFP) – US Treasury Secretary Steven Mnuchin on Saturday said Washington supports a World Bank request for a sharp increase in lending capacity in exchange for reforms to curb loans to higher income countries like China.
The United States, the institution’s biggest shareholder, rejected the World Bank request in October but on Saturday said the institution had made welcome progress.
“I look at this as a package transaction… we support a capital increase on the World Bank along with the associated reforms that they’re talking about making,” Mnuchin told reporters.
The final decision rests with bank shareholders who will vote on the proposal later Saturday but US support virtually ensures approval.
Mnuchin added that he was hopeful Congress would approve the increase.
The World Bank is seeking a $13 billion capital increase, including $5.5 billion to the bank’s private financing arm, the International Finance Corporation, according to press reports.
The last increase occurred in 2010 and added $5 billion to the bank’s capital and $200 million for the IFC.
In a statement to the World Bank’s governing committee released earlier, Mnuchin praised the progress the institution was making, notably the plan “to significantly shift lending to poorer clients.”
While he did not mention China by name, Mnuchin applauded the shift to a “new income-based lending allocation target and the re-introduction of differentiated pricing” for loans — meaning wealthier countries would pay higher interest rates.
“The latter will incentivize better-off, more creditworthy borrowers to seek market financing to meet their needs for development,” he said.
World Bank President Jim Yong Kim said Friday the institution had held “extensive detailed discussions” with member countries on the changes needed to win approval but he denied the reforms targeted any specific economy.
The bank agreed to increase lending “to lower middle-income countries” but “there’s nothing in the agreement that targets any specific country,” he told reporters.
– China has concerns –
“We believe we’ve made a good case for how a stronger World Bank Group can meet the aspirations of our shareholders, respond to global challenges, mobilize capital at scale, and make the institution even more efficient and effective,” Kim said.
China’s Vice Finance Minister Guangyao Zhu indicated support for increasing World Bank resources but said Beijing had reservations about the agreement for changes in lending policies.
“We are concerned about some of the policy commitments in the capital package, such as those on graduation, maturity premium increase for loans and differentiated loan pricing based on national income per capita,” he said in a statement.
“We hope that the Management take different national circumstances into full account in the implementation of the graduation policies…to ensure that these policies will not impede cooperation between the (bank) and upper middle income countries.”
But Zhu said the capital increase would be “a concrete measure to support multilateralism” at a time when “anti-globalization sentiments, unilateralism, protectionism in trade” were creating uncertainties in the global economy.
The administration of US President Donald Trump has argued that multilateral lending institutions should graduate countries that have grown enough to finance their own development, like China.
Mnuchin said the new arrangement, including for the IFC, “frees resources for countries that don’t have sustainable access to private capital markets.”