Poorer nations get larger role in World Bank

Under the changes, China will become the bank’s third-largest shareholder, ahead of Germany, after the United States and Japan. Countries like Brazil, India, Indonesia and Vietnam will also have greater representation. “We are grateful to our shareholding countries for this strong vote of confidence,” World Bank President Robert B Zoellick said at the conclusion of the spring meetings of the bank and the International Monetary Fund (IMF).  The bank’s 186 members also agreed to support a reform package that calls for greater openness and disclosure of information and improvements in managing risks and measuring results.

Financial commitments

The World Bank has made $105 billion in financial commitments since July 2008 in response to the global economic turmoil. The new capital in essence allows the World Bank to maintain its programmes at their level before the crisis.

“We could start to see this last year, at the time of our annual meeting, that unless we could get additional capital infusion, we wouldn’t be able to continue this high lending volume,” Zoellick said in an interview last week. “And indeed, even coming out of the crisis, we would be in a position where we’d have to come back below precrisis levels.”

In a Global Monitoring Report, released last week, the bank reported that the economic crisis had slowed the pace of poverty reduction in developing countries. As a result of the crisis, 53 million more people will remain in extreme poverty by 2015 than otherwise would have, the report found. Even so, the report projected that the number of people in extreme poverty — defined as living on less than $1.25 a day — would be 920 million in 2015, a significant decline from the 1.8 billion in 1990. Some developing countries sought a bigger capital increase, as other development banks have received. But the wealthier nations, which are squeezed, resisted such a move. Timothy F Geithner, the US Treasury Secretary, said Zoellick had “made a strong and compelling case” for the money that was approved. He pledged to seek Congressional support for the US’ share of the capital increase, $586 million or about $117 million a year for five years.

“For every dollar the US contributes to paid-in capital for the World Bank, $26 worth of assistance is delivered,” Geithner said. Zoellick carefully devised the capital increase and voting changes to be adopted together. The $5.1 billion in so-called paid-in capital, which the bank can use for day-to-day operations, will bring the bank’s cash on hand to about $40 billion. Of the $5.1 billion, developing countries will contribute $1.6 billion in connection with a shift in representation that will give them 47.19 per cent of voting power, up from 44.06 per cent. The actions fulfill a pledge the bank’s members made in Istanbul in October. In 2008, the bank’s members approved a smaller shift of 1.46 per cent of voting power to the developing countries from the wealthy ones and added a 25th seat on the bank’s governing board, raising to three the number of seats for sub-Saharan Africa. All told, the cumulative shift of 4.59 per cent of voting power amounts to the greatest realignment in representation at the World Bank since 1988.

“As the developing countries gain more shares, they have to pay for them,” Zoellick said in the interview. “Part of the good story here is a burden-sharing story.”
The bank’s members said it should redouble its focus on helping the poor, especially in sub-Saharan Africa; invest in agriculture and infrastructure; promote global “collective action” on climate change, trade and other priorities; combat corruption; and prepare for crises. Zoellick, who served as the US trade representative and then as deputy secretary of state under President George W Bush, said in the interview that the less wealthy countries were leading the global economic recovery, while the US, Europe and Japan had rebounded more slowly. “A lot of growth is coming from the developing world, and so the financing we do in the developing world is now beyond charity and social solidarity — it’s a question of self-interest,” he said,  adding, “they have become sources of demand.”