The Reagan administration yesterday announced plans to cut funding of subsidized loans to the world's poor countries through international lending institutions by nearly 26 percent over the next five years.
This reduction, from $1.537 billion in fiscal 1983 to $1.139 billion in fiscal 1987, is even more severe when the effect of inflation is taken into account. The cut will dramatically reduce the ability of the World Bank and the Inter-American Development Bank (IADB) to offer aid at concessional terms to developing countries.
The specific budget plans were announced by Treasury Under Secretary Beryl Sprinkel and Assistant Secretary Marc Leland in conjunction with issuance of a long-awaited report on "United States Participation in the Multilateral Development Banks (MDBs) in the 1980s."
"There's little value in throwing money at these poor countries," Sprinkel told a press conference, "unless they adopt the necessary macro- and micro-economic policies to make them work."
The Treasury report conceded that this will cut U.S. soft loan aid 30 percent to 45 percent in real terms from levels originally negotiated, and allow only the very poorest countries to receive subsidized loan money through the international banks.
The U.S. decision will drop the annual contribution to "replenishment" of funds for the World Bank's International Development Association (IDA) from about $1 billion to $750 million, triggering a similar slash in contributions from other rich countries.
Small dollar increases are planned for the Asian Development Bank and the African Development Fund over this five-year period, but in real terms their funding from the United States will also go down as part of a comprehensive new Reagan administration approach that gives priority to "hard window" development loans, and stresses an increasing role for the private sector.
Hard window loans are made at rates closer to normal market interest levels while soft loans are made either at lower rates, or sometimes with no interest charged but merely a service fee.
The report has been in preparation for the past year in response to complaints from conservative members of Congress and academic experts that the MDBs were growing too big. "We wanted to find out," Sprinkel said yesterday, "whether there was too much emphasis on quantity targets for development projects than quality."
Yesterday's report did not deal with the International Monetary Fund (IMF), but Sprinkel said: "We want changes in the IMF, too, and we're beginning to get them. We want to help the poor countries, but we do not want to redistribute our wealth to them with zero results."
The central conclusion of the 194-page report was that the MDBs had served important U.S. interests well, and that there should be continued, if reduced, U.S. support for them because, Sprinkel said "in most cases they provide a cost-effective way of helping less-developed countries."
But he said that the United States will insist that the MDBs put more stress "on free and open markets" and that there be "minimal government interference."
Sprinkel said that the World Bank must insist on "more conditionality" in its lending. In respect to IDA, the report calls for more systematic "maturation," a process by which poor countries will be graduated from the IDA list to the bank's "hard loan" window, and eventually into the private market.
World Bank officials plan a low-profile resistance to the U.S. effort to whittle back IDA, claiming that the "graduation" process should reflect economic progress in recipient countries, and not be keyed just to the idea of saving money.
IADB officials are especially worried that poor South American countries, with little borrowing power outside the IADB's soft-loan window, will be severely hurt, because other countries will drop their contributions by the same percentage of the U.S. cut.
But Sprinkel said: "We'll be pushing in that direction--at least to a different mix of soft and hard loans."
The United States also proposes to save about $200 million by abandoning the 7.5 percent of its capital contributions to the banks that is paid-in, making 100 percent of its shares callable. The motivation here is to reduce the impact on the budget.