By Charles Kenny
Earlier this month, House Committee on Financial Services Chairwoman Maxine Waters (D-Calif.) threatened to hold up a capital increase for the International Finance Corporation (IFC), the private sector arm of the World Bank Group. At issue was $2 billion in financing provided through the IFC ‘Private Sector Window’—a facility that diverts World Bank funding for low-interest loans provided to governments in the world’s poorest countries and uses it to support private firms in those countries instead. Beneficiary firms were "selected without competition on the basis of unsolicited proposals," argued Waters. She demanded a subsidy model that was “transparent, competitively based, focused on impact, and guarded against rent-seeking opportunities.”
The Bank Group has offered clear, consistent and compelling advice on government subsidies to the private sector. It emphasizes transparency, a level playing field for firms and the need to focus subsidies where they will maximize public good. For example, the World Bank has signed up to multilateral development bank principles that call for identification of “a clear market or institutional failure or public policy goal that is best addressed through a subsidy,” before selecting that instrument. They also suggest subsidies should be transparent and that there should be an “equal opportunity for funding to qualified companies on a non-discriminatory basis.” Again, the Bank Group issued guidance suggesting transparency in terms of financing structure, including guarantees and grants, in public-private partnerships.