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International Financial Institutions (IFIs) and particularly the relationship between the IFIs and the United States.
Scott Morris is a senior fellow at the Center for Global Development and director of the US Development Policy Initiative. In addition to managing the center’s work on US development policy, his research addresses development finance issues, debt policy, governance issues at international financial institutions like the World Bank and IMF, and China’s role as a development actor.
Morris served as deputy assistant secretary for development finance and debt at the US Treasury Department during the first term of the Obama Administration. In that capacity, he led US engagement with the multilateral development bank, as well as US participation in the Paris Club of official creditors. He also represented the US government in the G-20’s Development Working Group and was the Treasury’s “+1” on the board of the Millennium Challenge Corporation. During his time at Treasury, Morris led negotiations for four general capital increases at the multilateral development banks and replenishments of the International Development Association (IDA), Asian Development Fund, and African Development Fund.
Morris was a senior staff member on the Financial Services Committee in the US House of Representatives, where he was responsible for the Committee’s international policy issues, including the Foreign Investment and National Security Act of 2007 (the landmark reform of the CFIUS process), as well multiple reauthorizations of the US Export-Import Bank charter and approval of a $108 billion financing agreement for the International Monetary Fund in 2009. Previously, Morris was a vice president at the Committee for Economic Development in Washington, DC.
The World Bank should declare the IDA-17 replenishment its last and move to replace it with a broader bank resource review. Sticking with the status quo risks an underfunded institution and one that is increasingly isolated from its shareholders (yes, that would be a bad thing).
President Obama earlier this week made a last minute appeal to donors to the Global Fund to Fight AIDS, Tuberculosis and Malaria. Offering a US pledge of $1 for every $2 pledged by other donors for a total US pledge of up to $5 billion, the president said, “don’t leave our money on the table.” Well, the initial commitments are in, and it appears that there will in fact be US money left on the table. Donors to the Global Fund announced total pledges of $12 billion, suggesting a US commitment of about $4 billion.
Hey international community, so you’re feeling helpless as you watch the debt limit crisis unfold in Washington? Here’s something you can do about it.
With the world’s economic policymakers in Washington this week for the annual meetings of the World Bank and IMF, there is no shortage of commentary from foreign officials about the dire impact of a US government debt default (see here, here, and here), including the harm already done in the form of spikes in borrowing costs for their governments.
World Bank Still Loans an Average of $2 Billion a Year to China
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Washington – China continues to borrow billions of dollars a year from the World Bank, making it one of the bank’s top borrowers—despite being the world’s second-largest economy and itself a major global lender, according to a study released today.
Researchers at the Center for Global Development (CGD) found that the World Bank’s International Bank for Reconstruction and Development—which offers loans to middle-income and credit-worthy lower-income countries—has loaned more than $7.8 billion to China since the country surpassed the bank’s “graduation” income threshold for lending in 2016. According to the World Bank’s guidelines, $6,895 in gross national income per capita is the current threshold. The researchers reviewed and analyzed all World Bank projects in China since the country crossed the income threshold.
Lending to countries above this threshold has been a controversial subject with the United States, as well as with some in Europe, who are pushing for strict graduation standards that would make wealthier borrowers ineligible for bank loans (i.e., “graduation”). In 2018, World Bank shareholders agreed to limit loans to countries above the threshold to only projects that focus on building long-term capacity and help the countries “graduate” away from World Bank lending, or projects that benefit the world at large. The agreement also requires wealthier borrowers to pay more in interest charges on their loans.
China’s World Bank borrowing continues apace with the country’s trillion dollar lending program under the Belt and Road initiative.
“The fact that China is one of the World Bank’s largest borrowers at the same time that it lends billions of dollars to developing countries under Belt and Road has become a political thorn in the side of the bank and has raised the ire of countries like the United States,” said Scott Morris, a senior fellow at CGD and the lead author of the study. “Borrowing on this scale certainly deserves scrutiny. But a fair-minded appraisal suggests that we shouldn’t be too quick to shut China off at the bank.”
The Center for Global Development’s study found that $3 billion of the World Bank’s loans to China—about 38% of the total—went to fighting climate change, controlling air pollution, and other efforts that have benefits beyond China’s own borders.
“A substantial portion of bank lending to China is aimed at reducing carbon emissions. As the world’s largest polluter, China has to be at the forefront of any meaningful progress on climate change, and if the World Bank can help provide the right incentives for that, we all stand to gain,” said Morris.
Outside of climate finance, $4.9 billion of loans went toward development projects in domestic-focused sectors, such as transportation infrastructure and education. Roughly one-third of these projects were allocated to China’s wealthier provinces, with no clear justification for World Bank lending. The study recommends greater clarity around all project lending in China according to the criteria established in the 2018 agreement and greater discipline in lending decisions aligned with these criteria.
“The world has a lot to gain from the World Bank’s relationship with China, so the conversation should be more about modulation and less about graduation,” Morris said. “A more focused relationship, and one that frankly asks more from China in terms of interest charges on loans, can help lower the political heat and put things on a sustainable and productive path.”
You can read the full study at https://www.cgdev.org/publication/examining-world-bank-lending-china-graduation-or-modulation.