WASHINGTON — U.S. Treasury Secretary Steven Mnuchin outlined concerns about World Bank lending practices, which continue to stand between the U.S. government and its support for a capital increase at the multilateral development bank.
“More capital is not the solution when existing capital is not allocated effectively,” Mnuchin wrote in the statement, distributed the night before Saturday’s meeting of the World Bank Development Committee at the institution’s annual meetings.
The U.S. government’s concerns, as expected, continue to focus on the issue of “graduation.” Mnuchin represents a Trump administration view that large and creditworthy economies should not be eligible for cheap loans from the International Bank for Reconstruction and Development, and that lending should instead flow to lower income countries.
“We want to see a significant shift in allocation of funding to support countries most in need of development finance, including through a credible application of the World Bank’s graduation policy,” Mnuchin said in the statement.
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He added that the U.S. recognizes that there is a role for the bank to play among its “wealthier borrowers,” but he said the administration believes this role should focus on “knowledge transfer,” and that more effort should be spent on transitioning larger economies off of donor assistance.
Significantly, Mnuchin’s statement makes no mention of a timeline for any decision about the capital increase.
World Bank President Jim Yong Kim has expressed confidence that such a decision will take place during or before the World Bank and International Monetary Fund Spring Meetings in April next year. In his press conference yesterday, Kim said he was “extremely optimistic,” citing the fact that the U.S. government is now, at least, actively engaged in discussions about the capital increase.
Mnuchin’s statement also suggests the bank’s largest shareholder — the U.S. government — is not yet satisfied with the institution’s efforts to trim its own internal budget, even with the cost-saving measures Kim has already implemented, which included significant layoffs.
Mnuchin included a few suggestions for where the bank might find additional savings.
“While we appreciate the Bank’s efforts to curtail spending through its expenditure review, we see scope for further budget discipline, especially with respect to compensation and the Executive Board budget,” the Treasury Secretary wrote.
In the hallways of these annual meetings, some World Bank staff members have shared hushed concerns that without a capital increase the institution might see further job cuts — and they worry whether cost-cutting has already diminished the bank’s in-house expertise.
In some areas the new U.S. administration finds reason to cheer the direction the bank is taking. Mnuchin singled out the bank’s ongoing efforts to strengthen its independent accountability mechanism — the World Bank Inspection Panel — as a welcome sign. He also voiced support for the bank’s new Environmental and Social Framework to be launched next year.
Mnuchin applauded the bank’s intervention in crisis response, particularly to hurricane-affected Caribbean states. He also voiced U.S. approval of efforts to work more closely with the private sector, such as through the so-called “cascade” approach, spearheaded by the International Finance Corporation.
Finally, and perhaps least surprisingly, the Treasury chief singled out an initiative that only formally launched this week — the Women Entrepreneurs Finance Initiative. “We-Fi,” developed in collaboration with Ivanka Trump, first daughter and special advisor to the president, has been a rare and controversial point of engagement between the Trump administration and the multilateral development bank.
“We welcome the approval of the Women Entrepreneurs Finance Initiative, and applaud the leadership of President Kim in facilitating its swift development and securing robust donor support,” Mnuchin wrote.
Ivanka Trump will join Kim at the World Bank in a public event highlighting the new effort on Saturday. Whether that will be followed in the afternoon by a more generous U.S. stance on the bank’s capital position remains to be seen.
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