FINANCE: World Bank Soft-Loan Facility in Limbo

By Jim Lobe Reprint | | Print |

Jim Lobe

WASHINGTON, Jan 5 1996 (IPS) - With the White House and Republican-led Congress still at war over how to reduce the U.S. federal deficit, the fate of the largest source of concessional loans to the world’s poorest countries remains in limbo.

Finance officials from more than two dozen donor countries are waiting for the administration of President Bill Clinton to decide how much money it will ask Congress to contribute to the International Development Association (IDA) next year before taking up the future of the 35-year-old agency.

Clinton, however, is still battling to get the 700 million dollars Congress tentatively approved for IDA for fiscal 1996. His administration has not yet addressed how much it will ask for next year; let alone whether the United States will contribute at all to IDA’s 11th replenishment, scheduled to begin July 1.

As a result, IDA donors and the World Bank itself have been left hanging. The next donors’ meeting has been tentatively set for mid-February by which time Clinton is supposed to have submitted his 1997 budget requests and sorted out the current impasse with Congress.

IDA, which provides no-interest loans to countries whose per capita income is less than 805 dollars, is supposed to be replenished every three years. Under the current Tenth Replenishment, IDA has disbursed close to six billion dollars a year, more than 40 percent of which has gone to Africa; 25 percent to South Asia; and 17 percent to East Asia, primarily China, and the balance to the poorest countries of Latin America, the Caribbean, Eastern Europe and Central Asia.

Almost 80 countries, with a total population of 3.2 billion, are eligible to borrow IDA credits which charge an annual service fee of 0.75 percent and can be repaid in up to 50 years.

Donors committed 18 billion dollars in 1992 to IDA-10 which runs out June 30. Of that total, the United States, under Republican President George Bush, pledged 20 percent, or 3.75 billion dollars, over the three years. But the Republican-led and increasingly isolationist Congress has not met that commitment.

Last year, Clinton asked Congress to approve most of the outstanding balance — about 1.35 billion dollars. But the House of Representatives, whose Republicans hail more from the party’s right, voted only 525 million dollars. In its version, the Senate approved 725 million dollars.

It took Clinton’s personal intervention to reach a compromise of 700 million dollars. Those funds, however, are now treading water as part of a foreign aid bill which has been held up for three months by a dispute between Senate and House Republicans over whether the United States should fund agencies which support population programmes abroad that include abortion.

While the other donors, according to knowledgeable officials, assume that the 700-million-dollar appropriation will eventually clear its last legislative hurdles, 935 million dollars of the U.S. commitment to IDA-10 will remain unpaid.

Bank officials believe that the administration will ask Congress for the balance in its fiscal 1997 aid request. They are hoping Clinton will ask for some additional amount as a down payment on IDA-11. But they know that Congress may balk at both.

“They’re being very responsible,” says one Bank official, who described the Clinton position in the IDA talks as not wanting to commit to anything on which it cannot deliver.

But the wait is wreaking havoc on the process of negotiating IDA-11, described by one officials as “very fluid.”

It remains unclear whether Congress, particularly if right-wing Republicans retain or increase their majority in upcoming elections, will approve any U.S. participation in IDA-11, even if they go along with next year’s request for IDA-10. One deficit- reduction plan floated last April by the chairman of the House Budget Committee — one of the principals in the current budget talks — urged ending U.S. participation in IDA in 1995.

As IDA’s biggest donor since it was founded at the height of the Cold War, Washington is seen as key to the agency’s future.

When, in the mid-1980s, Washington fell behind in its IDA contributions, other donors created a separate fund to make up the difference. Led by France, they also restricted the ability of U.S. companies to bid on procurement contracts.

Donors are expected to consider a similar solution this time if, as appears likely, Washington does not come up with any IDA-11 money until fiscal 1998. They may set up an interim, one-year fund with strict rules on procurement designed to punish U.S. firms for Congress’ delinquence.

That course will be strongly resisted by the U.S. Treasury which represents Washington at the Bank. U.S. officials warn that U.S. companies with multinational interests, along with the tiny development lobby in Washington, represent just about the only constituency with a vested interest in IDA and that the Bank would therefore be “cutting off its nose to spite its face” if a procurement ban took effect.

At the same time, other donors feel “significant irritation” with the present situation, according to one official who noted that if Washington fails to meet its IDA-10 commitment, both Germany and Canada, and possibly other donors, will reduce their own contributions proportionately.

Indeed, without U.S. action, IDA faces many questions about the support it can offer its ever-increasing list of clients. Demand for IDA loans has never been higher — eight new countries, including Bosnia, have become eligible to borrow from IDA since IDA-10 took effect, while Cambodia and Vietnam, long barred by the United States from obtaining loans, have become active again.

At the same time, bilateral development aid to developing countries has been falling steadily since 1991. The huge increases in private investment have not made up the gap, as they have flowed primarily to non-IDA countries.

Despite the rising demand, Bank officials have been hoping that donors will agree to a 15-billion-dollar IDA-11. But even that amount — a real decline of almost 25 percent — assumes that the United States will pledge its 20-percent share, a prospect which even U.S. Treasury officials see as unlikely.

In any case, a substantially smaller IDA — which appears inevitable at this point — will mean major changes for its clients. “Much will depend on performance,” says one Bank official who said African countries — generally the poorest of IDA’s clients — will no longer be guaranteed the 40- to 50- percent share of IDA resources they claimed during IDA-9.

At the same time, moves by some U.S. lawmakers to tie future U.S. contributions to IDA to barring China as a client have already surfaced and could easily become part of the Congressional debate on the agency’s future.

FINANCE: World Bank Soft-Loan Facility in Limbo

By Jim Lobe Reprint | | Print |

Jim Lobe

WASHINGTON, Jan 5 1996 (IPS) - With the White House and Republican-led Congress still at war over how to reduce the U.S. federal deficit, the fate of the largest source of concessional loans to the world’s poorest countries remains in limbo.
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