The US government is refusing to provide the World Bank with a capital increase unless it re-considers its lending practices with respect to its biggest borrower China, in a move described by one analyst as “picking a direct fight” with Beijing.
The World Bank’s push for increased financial resources from shareholders has met with stiff resistance from the Trump administration, which wants the financial institution to conduct a review of its balance sheet, and in particular its level of lending to China.
The World Bank has requested a capital increase from shareholders in order to meet increasing demand for loans.
In response to the request a senior official from the US Treasury said to Reuters that the World Bank still needed to perform “substantial work” on its balance sheet before the US would consider extending more funds.
“The bottom line here is right now we’ve got too high a percentage of the World Bank’s balance sheet that’s going to countries and to projects that already have ample borrowing capacity,” said the official.
The Trump administration is reportedly concerned about the level of lending extended by the World Bank to China, which is its biggest borrower, as well as Washington’s largest foreign creditor.
According to Scott Morris, a former US Treasury official who currently works with the Center for Global Development, the Trump administration objects to the World Bank’s current strategy under president Jim Yong Kim, which focuses on closer engagement with China to diminish the influence of rival institutions such as Beijing’s Asian Infrastructure Investment Bank.
Kim has defended the World Bank’s close relationship with China on the grounds that it will abet its work in other emerging economies.
“For me the rationale for us working in China is quite clear,” said Kim. “Not only are we helping them along the development path but the lessons we learn in China…are very helpful to our work in other developing countries,” said Kim to reporters.
Morris said to The Financial Times that the Trump administration’s move was equivalent to “picking a direct fight with China” over the control of international financial institutions.
“It’s really setting up some pretty deep divisions going forward,” said Morris.