The president of the World Bank said yesterday that the "economic distress of the poorest nations is a time bomb ticking away," and he called on wealthier nations for immediate boosts in foreign aid and contributions to international development institutions.
Addressing the annual joint meeting of the World Bank and the International Monetary Fund, A. W. Clausen said that developed nations must show the political will to help not only middle-income countries such as Brazil and Mexico, but also the poorest nations such as China, India and the states of sub-Sahara Africa.
Clausen, the former head of Bank of America, called for a $16 billion boost in the resources of the International Development Association, an affiliate of the World bank that makes development loans with low interest rates and easy repayment schedules to the world's poorest nations. These countries generally cannot afford to borrow very much from the World Bank, which makes long-term development loans at market rates.
Commercial banks, which became major lenders to middle-income countries in the 1970s and early 1980s before those countries became inundated by their debt loads, almost never consider lending to impoverished nations.
Clausen said that even a $16 billion "replenishment" of the IDA's resources--which would take place over a three-year period ending June 30, 1987--is barely sufficient to deal with the needs of poor countries.
The United States, however, has said that it wants IDA's resources to grow about $9 billion over three years--the United States would contribute $750 million a year--while most other industrial countries believe a $12 billion increase is in order.
Clausen also called for an increase in the assets of another World Bank affiliate, the International Finance Corp., which makes equity investments and loans to private-sector companies in developing countries, and a sharp increase in the "capital" of the bank itself.
Late Monday, the finance ministers who make up the so-called development committee of the IMF and the World Bank said there was general agreement that the bank should undertake a "selective capital" increase of $8 billion shortly and begin planning for a longer-term increase in the bank's capital base as well.
The selective capital increase is required because of a pending 47 percent increase in government contributions to the International Monetary Fund, the international financial rescue agency whose resources have been depleted by the Latin American debt crisis. Countries will contribute new capital to the bank in such a way that their relative contribution to the bank and to the IMF are the same.
Because the World Bank borrows most of the funds it lends on the open market, the governments that are the bank's shareholders actually pay out very little when there is a capital increase. Most of the capital is on an "on-call" basis, should borrowing countries default, something that never has happened.
In his 45-minute address, Clausen also called upon countries to end trade protectionism, which he said hinders the ability of developing countries to increase their exports--which they must do to pay off their debts.
He also chided countries--presumably the United States--that claim they have difficulty coming up with money for international development institutions because of their own budget problems. He said the increases required are a tiny portion of industrial countries' budgets.
Clausen said that countries should question why they are increasing military budgets sharply at the same time they are squeezing their already tiny economic assistance to developing countries.