US reduces aid to World Bank, sending ripples around the globe

By , Staff writer of The Christian Science Monitor

The Reagan administration awaits the diplomatic fallout from its decision to limit the United States contribution to the World Bank's low-cost loan program for poor nations.

''It will be seen as a certain retreat from global leadership,'' charged Richard Feinberg, vice-president of the liberal-leaning Overseas Development Council.

''It is shortsighted in terms of the United States' own economic interests and the world economy,'' said C. Fred Bergsten, who as a Treasury official under President Carter negotiated the previous replenishment of funds for the International Development Association (IDA), the World Bank affiliate.

Recommended: Could you pass a US citizenship test?

IDA lends money to 40 of the world's poorest countries - where per-capita income averages about $1 a day - at no interest and with 50 years to repay. Among the major recipients are India, the sub-Saharan countries, and more recently, China.

President Reagan decided several weeks ago to keep the US contribution to IDA to $750 million a year for three years starting July 1, 1984 rather than the $ 950 million urged by Secretary of State George Shultz or the $1 billion hoped for by the World Bank. Last year Congress appropriated $950 billion.

Many others of the 33 nations contributing to IDA hoped that some give in the American position would surface at final negotiations Thursday, Friday, and Saturday in Washington.

That proved not to be the case. The US firmness means that IDA will have $9 billion, rather than the $12 billion sought by all the other donor countries, to spend over the next three years.

The IDA negotiators also agreed to give the World Bank a mandate to seek supplemental resources for IDA. Britain and some other nations had been talking of establishing a special fund or account with extra contributions which would make soft (long-term, low-interest) loans, but ban the recipient countries from using that money to make purchases in the US.

Another decision of the group permits an $8 billion ''selective increase'' in the World Bank's capital that recognizes the growing economic importance of Japan. Japan will replace Britain as the second largest contributor to the bank after the US. Together with a ''general increase'' in capital, the total capital of the bank will reach $88 billion by July, allowing a sizeable increase in the bank's normal loan program to developing countries. Apart from the IDA soft loans, the bank lends to developing countries at interest rates below those on world capital markets, but still substantial. Shortly after the Reagan administration took office, the Treasury Department launched a study of US participation in the multilateral development banks, such as the World Bank and the Asian Development Bank. The February 1982 report recommended that the US ''begin to reduce its participation, in real terms, in the soft-loan windows, especially IDA.'' The Overseas Development Council's Mr. Feinberg suspects the decrease will be seen abroad as indicating a decline in the US commitment to multilateral institutions. He added that it will also be regarded as further evidence that the US only cares about the third world if its own security is involved, as in Central America. Mr. Bergsten, now director of the Institute for International Economics, held that the reduced contribution to IDA would harm some poor countries, forcing them to cut back on some development projects. ''It is important to image and reality,'' he said.But a high State Department official, though personally believing it was ''very sad'' that the administration didn't choose the $950 million figure, doesn't expect much economic or political harm to the US. ''It will give those who want to criticize the United States for its parsimony a larger stick,'' he said. He and many congressional staffers thought the administration could have pushed through a larger appropriation for IDA if it fought for it as it has for money for El Salvador. To blame the low request on Congress, said the State Department official, is ''disingenuous.''Some conservatives in Congress and the Reagan administration regard foreign aid as something akin to welfare. They argue that the multilateral banks promote enlargement of governments rather than the private sector.Moreover, the Treasury and the Office of Management and Budget see cuts in the soft-loan area as one relatively painless area to reduce federal spending. John Sewell, president of the Overseas Development Council, counters that this attitude is ''extremely shortsighted by any definition of United States interests.''

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...