WASHINGTON (AFP) - US Treasury Secretary Steven Mnuchin on Saturday (April 21) signalled 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, the institution's biggest shareholder, 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 incentivise better-off, more creditworthy borrowers to seek market financing to meet their needs for development," Mnuchin said in a statement to the Spring meeting of the World Bank's governing committee.
The World Bank is seeking a US$13 billion (S$17 billion) capital increase, including US$5.5 billion to the bank's private financing arm, the International Finance Corporation, according to press reports. The last increase occurred in 2010 and added US$5 billion to the bank's capital and US$200 million for the IFC.
World Bank president Jim Yong Kim said on 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, mobilise 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.
CHINA HAS CONCERNS
China's Vice-Finance Minister Guangyao Zhu indicated support for increasing World Bank resources, but said Beijing had reservations about the agreement for changes in lending policies.
"We are concerned about some of the policy commitments in the capital package, such as those on graduation, maturity premium increase for loans and differentiated loan pricing based on national income per capita," he said in a statement.
"We hope that the Management take different national circumstances into full account in the implementation of the graduation policies... to ensure that these policies will not impede cooperation between the (bank) and upper middle income countries."
But Zhu said the capital increase would be "a concrete measure to support multilateralism" at a time when "anti-globalisation sentiments, unilateralism, protectionism in trade" were creating uncertainties in the global economy.
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 prioritise, 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 , "frees resources for countries that don't have sustainable access to private capital markets."