WASHINGTON: US Treasury Secretary Steven Mnuchin on Saturday signaled Washington would support the World Bank request for a sharp increase in lending capacity in exchange for reforms to curb loans to higher income countries like China.
The United States rejected the World Bank request in October but on Saturday Mnuchin praised the progress the institution was making, notably the plan “to significantly shift lending to poorer clients.”
While he did not mention China by name, Mnuchin applauded the shift to a “new income-based lending allocation target and the re-introduction of differentiated pricing” for loans — meaning wealthier countries would pay higher interest rates.
“The latter will incentivize better-off, more creditworthy borrowers to seek market financing to meet their needs for development,” Mnuchin said in a statement to the meeting of the World Bank’s governing committee.
The World Bank is seeking a $13 billion capital increase, according to press reports. The last increase occurred in 2010 and added $5 billion to the bank’s capital.
World Bank President Jim Yong Kim said Friday the institution held “extensive detailed discussions” with member countries on the changes needed to win approval but he denied the reforms targeted any specific economy.
The bank agreed to increase lending “to lower middle-income countries” but “there’s nothing in the agreement that targets any specific country,” he told reporters.
“We believe we’ve made a good case for how a stronger World Bank Group can meet the aspirations of our shareholders, respond to global challenges, mobilize capital at scale, and make the institution even more efficient and effective,” Kim said.
The final decision rests with the bank shareholders who will vote on the proposal later Saturday.
French Economy Minister Bruno Le Maire said he was confident the members would agree “on a substantial capital increase.”
“We have together set out what it should prioritize, in particularly focusing in the poorest countries and climate-focused projects,” he told reporters on Friday.
The administration of US President Donald Trump has argued that multilateral lending institutions should graduate countries that have grown enough to finance their own development, like China.
Mnuchin said the new arrangement, including for the World Bank’s private financing arm, the International Finance Corporation, “frees resources for countries that don’t have sustainable access to private capital markets.”