Treasury Secretary James A. Baker III was warned by a Senate Appropriations subcommittee yesterday that Congress is likely to slash funds for the World Bank and other multilateral development banks this year despite an urgent Reagan administration request for more money.
"We're on a collision course here," said Sen. Robert Kasten (R-Wis.), chairman of the Appropriations subcommittee on foreign operations. The mood among Democrats as well as Republicans in both houses of Congress, he told Baker, was that the development banks would have to take their share of budget reductions.
"There is some pressure to cut [their funds] in half," Kasten said at the start of a hearing on the administration's fiscal 1987 budget proposals for the institutions. Reagan had asked for $1.4 billion in budget authority to meet existing commitments and $3.8 billion for callable capital. That money, Baker said, does not become a budget expenditure "unless there is a doomsday scenario."
On a related matter, Baker told reporters during a recess in the hearing that President Reagan would nominate a new World Bank president to succeed A. W. Clausen by the time of the April 9-11 meetings here of key World Bank and International Monetary Fund committees. He confirmed that Labor Secretary William E. Brock had turned down the job for personal reasons.
Asked by Kasten at the hearing about criticism that there had been few results from his October proposal to boost multilateral and commercial bank loans to 15 key debtor nations, Baker said that the initiative "did not promise instant gratification . . . "
"The people who have labeled it a plan have missed the point. It is a principle, an initiative, or a concept, and I haven't heard of an alternative except writing down the [Third World] debt, and that would only cause a serious 'hit' to our banks and the loss of some democratic countries in Latin America."
Challenged by Sen. Daniel K. Inouye (D-Hawaii) to defend an increase in funding for the multilateral banks in the face of reduced budgets enforced on virtually all other programs, Baker insisted that except for the callable capital, the administration's requests virtually were unchanged from fiscal 1986, and represented international commitments and pledges undertaken after consultation with Congress.
"We cannot have it both ways . . . we cannot for long place more of the burden of fostering and enlarging the economic system on the MDBs and other international organizations, and then refuse to support them adequately," Baker said.
Nonetheless, Baker did reveal -- in insisting that the proposals had been "subjected to close scrutiny" -- that the United States had resisted pressure from other nations to back a new general capital increase for the World Bank "because we believe it to be premature."
Clausen has indicated he will propose a major capital increase for the World Bank, possibly on the order of $40 billion, at the April meeting of the IMF/World Bank Development Committee.
Baker said in his prepared testimony that the bank has ample capacity to boost its loan commitments by $2 billion a year for the next three years, and should concentrate that money more heavily "on the large debtors with credible reform programs." He added that only when there was a "demonstrated increase in the demand for quality lending" above that level would the United States consider a general capital increase.
Baker insisted that participation in World Bank and Inter-American Development Bank (IDB) activities "is the most cost-effective way" for the United States to spur development in less-developed nations. Not only does $1 billion invested in the World Bank generate $60 billion worth of lending, he said, but it goes to countries of strategic or economic importance to the United States.
For example, he said that in fiscal 1984, MDBs loaned $22.9 billion to Third World countries, of which $15.6 billion went to countries that receive direct U.S. foreign aid, and an additional $4.6 billion went to other countries of strategic importance to the United States. "That's 88 percent of MDB lending to countries of significant importance to the United States," Baker said.
Nonetheless, Baker was peppered with questions from committee members that indicated the MDB appropriations are in trouble. Sen. Arlen Specter (R-Pa.), for example, challenged the wisdom of World Bank loans to Brazil for steel production, or to Colombia for coal, when steel and coal workers in this country are losing jobs.
Baker said that "we frown on projects that create production of commodities that are in world surplus." But he said that such projects are only a "small part of what they do," and under the new policy that the United States is encouraging at the World Bank, "there will be more structural and sectoral loans, and less project lending."