(Bloomberg) -- The World Bank won support from its member countries for a $13 billion capital increase, with the U.S. dropping its objection as the lender imposes measures that would potentially reduce loans to China.
The boost will be accompanied by internal steps “including operational changes and effectiveness reforms, loan pricing measures, and other policy steps,” the World Bank said in a statement after policy makers met on Saturday in Washington.
China will probably “gradually” end up borrowing less from the World Bank under the new system, which will charge higher rates of interest to wealthier countries, World Bank President Jim Yong Kim told reporters on Saturday. Kim said the bank will increase annual lending to about $80 billion, from $59 billion in the year ended June 2017.
The U.S. dropped objections to the capital boost after previously advocating for a limit on the World Bank’s resources and questioning why it lends so much to China, given the nation’s growing economic clout and ability to raise money in financial markets. But countries such as the U.K. had been pushing for a capital increase, arguing the lender needs more firepower to finance projects in developing countries.
Under the new agreement, the World Bank will focus more on lending to “low middle-income countries,” Kim said this week at the bank’s annual spring meetings in Washington. The development lender classifies China as an “upper middle-income” nation.
The new plan will give China more voting power at the institution. Its voting share in the bank’s main fund will rise to 5.7 percent from 4.5 percent. The U.S. will remain the biggest shareholder at 15.9 percent, down from 16 percent, followed by Japan at 6.8 percent after 6.9 percent.
A separate communique from policy makers said the change will “result in rebalanced shareholding and reduce extreme under-representation while continuing to deliver voice reform in manageable steps.”
Russia won’t join the plan, Deputy Finance Minister Sergey Storchak told reporters in Washington. He said his government can’t participate, citing the World Bank’s freeze on activity in Russia.
The World Bank plan would require congressional ratification in the U.S. Treasury Secretary Steven Mnuchin said in a statement to fellow policy makers on Saturday that “we expect countries benefiting most from the new shareholding arrangement to take on a greater share of the burden to help the poorest.”
Mnuchin also suggested the bank has agreed to cap wage growth and remove poor performers from its ranks. The text of his comments didn’t specifically mention China.
The World Bank committed $2.5 billion last year to China, up from $2 billion the year before. The development lender’s mission is to reduce extreme poverty around the world.
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