The price of going it alone in the World Bank
Current United States policy toward the World Bank lacks the support of America's economic allies and diminishes its influence over the course of international financial cooperation.
The immediate cause of this isolation is Washington's failure to meet its part of an internationally negotiated refunding of the International Development Association (IDA) for the period 1981-83. IDA is the ''soft loan window'' of the World Bank which makes interest-free, 50-year loans to the world's poorest countries. Although Congress authorized the full three-year, $3.24 billion contribution, it appropriated significantly less in 1981 and 1982 than the US pledged and now plans to stretch out payment of the remainder due past 1983.
Other donors disapprove. Therefore, despite a burden-sharing provision in the IDA replenishment - whereby a cutback by one major donor would be matched by cutbacks by others - several countries have recently broken with US policy and have committed to their full 1982 IDA installments.
Opposition of others to recommendations in a recent US government report on the World Bank and other multilateral development banks is a second reason for America's growing isolation and declining influence. Despite a generally favorable assessment of the performance of these institutions, the report proposes that the US reduce in real terms future contributions to the ''soft loan windows'' of the banks; and phase out paid-in capital, which would limit future expansion of the bank's lending capacities. To offset these measures, the report recommends ways that the bank might strengthen its role as a catalyst for greater private flows to developing countries. Desirable as that catalytic function might be, it cannot yield substantially increased resources for development in the near term.
In both making the IDA cutbacks and drafting the recent report, the US seems to have been too quick to assume that other major donor countries - faced, like the US, with budgetary constraints - would welcome significant reductions in resource transfers and in the World Bank's role. Although it is now too late to affect the 1983 foreign assistance budget, it is worth considering the costs of the current course of action to US national interests. It is also worth considering how to limit the damage.
At a minimum, the US's actions reduce the economic benefits it derives from the processes of economic growth and development helped by World Bank loans. Consider two points. Every dollar from the US leverages some $15-$20 in development finance from the World Bank, which borrows, against contributions, from the private markets in order to lend to developing countries. These countries are today the fastest growing markets for US goods and services. Moreover, US firms secure a large share of the contracts offered under bank loans - $6.4 billion in contracts to US businesses for $935 million in total US contributions to the bank.
Washington's present course may also diminish the likelihood that bank financing will continue to suit US foreign policy interests. Over the years, the World Bank has promoted economic development policies supportive of a free, open , and stable world economy. It is in the US interest that these policies be continued, and a dynamic World Bank, able to help countries finance and manage economic adjustment, growth, and the elimination of abject poverty, is one of the best means for encouraging that. Moreover, today's largest World Bank borrowers are countries of importance to the America.
Finally, current policy undercuts American ability to influence World Bank operations at a time when reforms are needed to respond to changing international economic relations. The administration wants World Bank resources to be redirected and reserved for countries that have not benefited from the direct expansion of private bank lending. The administration also wants the bank to do more to encourage countries to adopt sounder macroeconomic policies. These are important issues. But the US no longer carries sufficient weight in the bank to enforce its views.
After three decades of playing a dominant role in the bank, the US has let the gap narrow between its share of contributions and votes and the shares of others. This is an appropriate response to the increased economic importance of others.
However, if the US is not to forgo as well its ability to exert constructive influence, it must neither unilaterally back out of internationally negotiated agreements nor try to dictate reforms.
Instead of either paying the piper and calling the tune or going it alone, the US should learn to exercise leadership in the pursuit of common goals. And, as a modest indication of the ability to do that, Washington should commit itself to make good on its IDA pledge by no later than 1984.