Sunday, April 25, 2010

2nd UPDATE:World Bank Members Approve Capital Boost, Power Shift

By Tom Barkley
Dow Jones Newswires

(Updates to recast with focus on paid-in capital and China's share gain, while adding comments and additional details.)

WASHINGTON -(Dow Jones)- The World Bank won backing for its first major funding boost in two decades Sunday, with China emerging as the big winner in a shift of voting power.

Country members of the poverty-fighting multilateral bank emerged from a week of tough negotiations on the sidelines of the spring meetings with an agreement to increase the bank's capital base by $5.1 billion.

The capital injection, which would increase the bank's lending capacity by a third, still needs approval by some countries' legislatures, including the U.S. Congress. It would provide timely relief to an institution whose capacity has been stretched to the brink during the worst global recession since its creation at the end of World War II.

"The additional capital means that we will no longer face the possibility that we would have to cut back our lending later this year," World Bank President Robert Zoellick said at a press conference.

The World Bank would also better reflect the shift underway in global economic power toward fast-growing emerging economies, with China leapfrogging Germany, France and the U.K. to become the third-largest shareholder.

Developing countries, which account for more than half the capital increase, would also boost their voting power by 3.13 percentage points to 47.19%.

Chinese Finance Minister Xie Xuren called the vote an important step toward the "ultimate goal of equitable voting power between developing countries and developed countries."

The U.S. and Japan held on to the top two spots, though Japan lost some voting power and the U.S. share remained steady despite contributing more capital. More importantly, the U.S., which has had outsized power at the bank through the tradition of holding the presidency, would maintain veto power over major decisions.

"We can feel proud that we have concluded agreements on a transformative financial and governance reform agenda, along with new capital for the World Bank and a new and more representative shareholding formula," said U.S. Treasury Secretary Timothy Geithner. The Obama administration planned to seek Congressional approval for the U.S. capital contribution, he said.

Zoellick said he has already gained support from key U.S. lawmakers, including some Republicans, for the U.S. share amounting to a little over $100 million a year over a five-year period.

Whitney Debevoise, who represented the U.S. on the World Bank's board until last month, also predicted bipartisan support for the measure.

"I don't see a huge amount of controversy over this," said Debevoise, now senior partner at Washington-based law firm Arold & Porter LLP.

Under the deal, the actual increase in paid-in capital increase would amount to $5.1 billion at the bank's International Bank for Reconstruction and Development, with $1.6 billion coming from the shift in shareholdings. But the IBRD, the bank's main lending arm, could call on a total of $86.2 billion based on that paid-in amount, expanding its lending capacity to $276.1 billion.

The World Bank has already committed an unprecedented $105 billion in financing for developing countries since the crisis erupted in mid-2008, and it would be left with a lending capacity of just $8 billion a year after fiscal year 2012 without the capital increase.

However, anti-poverty organizations were still calling for more fundamental change, noting that African countries like Nigeria and South Africa were actually losing voting shares.

Elizabeth Stuart, senior policy adviser at Oxfam International, said the voting shift would still leave behind poorer countries, which only received "crumbs" out of the deal.

http://www.foxbusiness.com/story/market ... st+News%29