US poised to support $13b capital increase for WB
The Trump administration is poised to back a $13 billion capital increase for the World Bank in a package that would see significant lending reforms and an increase in China’s shareholding. Barring last-minute hiccups, US Treasury secretary Steven Mnuchin is set to tell fellow World Bank shareholders at next week’s spring meetings in Washington that he will support an increase in the bank’s capital, a senior Treasury official confirmed to the Financial Times. The move would be a significant shift in the US administration’s attitudes towards multilateral institutions.
“I think we are moving in that direction. We have been working for months on reforms at the bank and they have made a lot of progress,” the senior official said.
The turnround in White House views on the World Bank marks a major win for its president, Jim Yong Kim, who was first nominated for the role by former President Barack Obama. He has worked hard to build a relationship with the new administration and aligned himself with Ivanka Trump, the president’s daughter, who was behind a $150 million women’s empowerment fund launched by the bank last year.
The administration, which expressed reservations about World Bank lending to China and other middleincome countries at last October’s annual meetings, had been wary of the plans for a capital increase and expectations for an agreement at next week’s meetings were muted.
However, Scott Morris, a former Treasury official now at the Center for Global Development, a Washington think-tank, said: “I’m hearing a lot of positive sentiment both from the Bank side and the US side. That’s pretty remarkable.”
The Treasury official said the goal was to have the bank be self-sustaining. “The World Bank will be moving to a sustainable lending model that is not reliant on future capital injections,” the official said.
Trump’s ‘America First’ agenda has fostered a more skeptical approach towards international dialogue and established mechanisms for global co-operation. The president has, for example, called the World Trade Organization a ‘disaster’ for the US as the administration embarks on tit-for-tat threats of tariffs with leading trading partners including China.
The increase in paid-in capital will be split into two with $7.5 billion going to the International Bank for Reconstruction and Development, the bank’s main arm, and $5.5 billion to the International Finance Corporation, its private sector lender, the official confirmed. The US is set to provide $1.3 billion to the IBRD capital increase, the official added, but has not yet decided whether it will inject new capital into the IFC.
The IBRD last saw a capital increase in 2010 when shareholders agreed to inject $5.1 billion in new capital. At the end of the last fiscal year it reported having $41.7 billion in equity made up of paid-in capital and retained earnings and reserves.
As part of the deal China will see its voting power in the IBRD rise from 4.45 percent to around 5.7 percent, people familiar with the matter said.
The deal is expected to be endorsed in principle by World Bank shareholders at the spring meetings, according to people familiar with the discussions. Final approval is expected before this year’s autumn meetings.