The World Bank cut funds available for low-cost loans to its poorest members by more than a third yesterday, formally recognizing that the United States has cut back substantially its contributions to the International Development Association (IDA), a bank affiliate, a spokesman said.
The executive directors of the bank decided at a board meeting that only $2.6 billion would be available for "soft" IDA loans this year, a cut of $1.5 billion. The United States originally planned to give $1.08 billion to IDA this year but has now cut this to $750 million.
The directors also reportedly decided that once countries reached a level of per capita income of $2,650 a year, discussions should begin on their "graduation" from the parent bank itself. The United States has pushed for a much lower income limit on those who can borrow from the World Bank, but was in the minority yesterday, sources said.
The International Development Association was due to make loan commitments of $4.1 billion in the financial year ending on June 30. Since the U.S. reduction in its contribution, other major donors--including all the major industrialized nations--have cut back correspondingly.
There was considerable criticism of the United States at yesterday's board meeting, sources said. World Bank president A.W. Clausen reportedly emphasized that the IDA loans were an investment for everybody, as they aimed to raise the living standards of the very poor.
In partial compensation for the $1.5 billion cutback in loan commitment, the World Bank is to raise its ordinary lending this year by $800 million, or 8 percent, a spokesman said yesterday. These funds, however, will only be available to countries able to pay the higher interest rates charged on the main World Bank loans, and who satisfy the stricter requirements of creditworthiness.
India, the major beneficiary of IDA money in the past, has already been warned by Clausen that it will have a smaller share of these funds in the future. South Asia as a whole will have its IDA share for this year cut from $2.8 billion to $1.6 billion, while the sub-Saharan African countries will be cut from $1.1 billion to $900 million.
The South Asian countries will be better placed to borrow from the main World Bank window as most of the African countries who have IDA loans are not considered sufficiently creditworthy.
The Board said that the new guideline for "graduation" would only trigger discussions on phasing out bank borrowing, and would be applied flexibly.