Washington - 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 June 30, 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.
Read also: Days of World Bank dictating to nations 'are over'
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 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
U.S. 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 percent 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.