–World Bank Avoids Cuts in Lending This Year By Adding $5 Billion

By Denny Gulino

WASHINGTON (MNI) – Developing countries Sunday made another small
step toward majority control of the World Bank’s main lending arm, with
China moving up in rank to No. 3, while the 186-country membership gave
the Bank more to lend.

The near-term lending capacity of the Bank was increased by a
little more than $5 billion, $1.6 billion of it from developing
countries.

World Bank President Robert Zoellick said those countries that had
to give up some voting power would rather have not, but overall, the
3.13 point advance to 47.19% voting power for the smaller economies was
seen by all to be in their own best interests.

China’s new No. 3 position in voting power is preceded by No. 2
Japan and No. 1, the United States, with 15% of the shares in the Bank’s
International Bank for Reconstruction and Development.

Zoellick, in a news conference, said a new formula would be
developed for the next share realignment in 2015 so it was apparently
not certain when the developing countries would pass the 50% control
mark.

“It’s far from a perfect process,” Zoellick said of the past
formula that resulted in an agreement last year to shift voting shares
another 3% away from the founders of the Bretton Woods institution to
development and “transition” economies.

“Because there are always sensitivities, while all the countries
agreed they wanted to make the shift — those that had to give up shares
obviously would have preferred not to have done so,” Zoellick said,
“they agreed that for the next shareholding review, in 2015, that they
would seek to develop a new formula and new methodology.”

“The devil is always in the details in these,” he said. “The
important thing, they all promised they would do this. They accomplished
their promise.”

Earlier in the day, in the U.S. statement to the Development
Committee forum, Treasury Secretary Tim Geithner said, “We can feel
proud that we have concluded agreements on a transformative financial
and governance reform agenda, along with new capital for the World
Bank and a new and more representative shareholding formula.”

“The United States agreed not to take up its full shareholding in
this new arrangement,” he said.

The membership endorsed boosting the World Bank Group’s capital by
slightly more than $5 billion, which Zoellick said has saved the Bank
from cutting its lending this year. The United States has been pushing
for an increase in aid to Afghanistan.

Now, to go forward, the various legislative bodies, including the
U.S. Congress, has to approve the first capital increase for the Bank in
two decades. “In making the case to parliaments or legislatures, not
only the U.S. but Canada, those in Europe and Japan, I think it’s
important to show there’s a burdensharing,” Zoellick said. So a way was
worked out so that “at least half the contribution of this package
coming from developing countries. It really shows the mutuality and the
burdensharing.”

The worldwide shareholders in the World Bank agreed on a goal of
increasing capital by more than $86.2 billion. The Bank’s private sector
arm, the IFC got permission to raise additional capital through a hybrid
bond, through retained earnings and with a $200 million capital
increase.

The meeting also gave final approval to its five-part strategy of
focusing first on poverty, then on growth, then on joint projects to
strengthen efforts on climate change, trade, food security, energy,
water and health. The fourth and fifth priorities are those directed at
anti-corruption efforts and finally, to prepare for future crises.

The formal implementation of the capital increase and shareholding
changes are due to be approved later in the year by the Boards of the
IBRD and IFC.

** Market News International Washington Bureau: 202-371-2121 **

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