A House appropriations subcommittee has adopted an amendment sponsored by Rep. Jack Kemp (R-N.Y.) knocking out $237 million in supplemental funds for the multilateral development banks that had been proposed by the Reagan administration.
This could be reversed by the full committee or on the floor. But the vote Wednesday night symbolized a growing distaste among conservative Republicans for the manner in which international lending institutions are operated and brought a charge from Democrats that the Reagan administration is not seriously fighting on Capitol Hill for its own lending program.
In an angry statement condemning the Kemp initiative, Rep. Dave Obey (D-Wis.), chairman of the House foreign operations appropriations subcommittee, said that, until the Republicans "get their act together," all future funding for these banks "is dead in both the supplemental and regular fiscal year '86 appropriations bills, so far as I am concerned."
Obey said that he and other Democrats will resist Republican efforts to "politicize" the international institutions.
"If the U.S. is going to change the nature of the banks by focusing on political considerations rather than just the economic requirements such as the viability of projects or the ability of borrowers to pay, then the reasons for the banks are gone," Obey said.
Affected at the moment are a $30 million installment of paid-in capital due to the World Bank, $112.5 million of paid-in capital for regular and special operations of the Inter-American Development Bank and $91.2 million of similar funds for the Asian Development Bank. There is also a small amount for the Inter-American Investment Corp., which deals with the private sector.
At the root of the problem is the feeling among Kemp and some other Republicans that these banks are not promoting the right mix of economic policies, especially in Central and Latin America. The IABD has a pending $58 million loan to Nicaragua that the United States is trying to block. Earlier, Secretary of State George P. Shultz urged the IABD not to make the loan, warning that it could affect American funding for all of the international lending institutions.
But beyond that, Kemp is pressing the institutions to stimulate economic activity through American-style tax cuts and tax reform.
"He wants to see an extension of Reaganomics or supply-side economics off-shore," an aide said.
The Democrats under Obey's leadership, however, have decided to refuse to support the administration's requests until the Republicans provide their own votes for the MDB appropriations. There is a bitter memory of the political campaign launched against 20 House Democrats who supported the administration's $8.4 billion funding of the International Monetary Fund two years ago, only to be accused of supporting left-wing foreign governments.
"I find it incredible that the administration couldn't deliver the vote yesterday of one fulltime Republican member of the subcommittee for the administration's request to fund the multilateral development institutions," Obey said.
"While White House and high-level Treasury officials were at the Bonn summit talking about new international commitments, all four foreign operations subcommittee members of their own party were voting here at home to renege on international commitments that the U.S. has already made. Only Mr. Conte the ranking minority member , an ex-officio voting member of all appropriations subcommittees, supported the efforts of the administration and the chairman to include funds to meet those commitments," he said.
Obey's threat to block future appropriations unless the GOP members support the administration could be a devastating blow to the World Bank's soft-loan arm, the International Development Association, which has been promised $750 million for this year, the second of three such installments. All told, there will be $1.35 billion at stake for the lending agencies during fiscal 1986. It also could be an ominous portent for a new general capital increase that the bank management intends to propose at the next annual meeting in Seoul in October.
The $30 million that the bank stands to lose if the Kemp initiative isn't reversed is the fourth of six installments of a general capital increase voted in 1981. That would reduce the U.S. voting power slightly, but not cripple the bank.
The IADB would be considerably more affected. Given the current strains between the United States and Central American countries, the IADB is under intense pressure to make decisions more harmonious with American policy.
Kemp argues that the IADB and other banks have not been following a policy that is best for the long-term stability and growth of these countries.
Sources suggest that Kemp's strategy on the vote Wednesday night was to force the Reagan administration to focus on these issues. He reportedly had warned Treasury Secretary James A. Baker III before he left for the Bonn summit that he would urge the deletion of the $237 million from the MDB supplementals. According to a source, "Baker provided a sympathetic ear." But neither Kemp nor Baker could have known that Obey's retaliatory strategy would result in passage of the Kemp amendment.
Although the IMF is not involved in the specific supplemental appropriations at issue, those on Capitol Hill interested in forcing a change in approach at the World Bank and the IABD make the same arguments about the need to exact a new direction from the IMF as well.