The Donald Trump administration has already picked fights with most international organizations and accords, from NATO to NAFTA. This week, it took aim at the World Bank, refusing to pony up more money for development projects because the bank lends so much money to China. That could serve to turbocharge China’s own efforts to craft an alternative to Western-led development banks.
For two years, the World Bank has been trying to get member countries to subscribe to a capital increase for its development unit, the International Bank for Reconstruction and Development, and hoped to reach a deal this week during the annual meeting in Washington. But the U.S. Treasury won’t back the move.
“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,” a senior Treasury official toldReuters, which noted that China is the IBRD’s biggest recipient of development loans, totaling $2.4 billion.
The Treasury official suggested that poor countries should use their own limited money or turn to the private sector, instead of seeking the development aid that has traditionally been disbursed as part of the World Bank’s poverty-reduction mission.
“To fund development needs, there needs to be renewed focus on domestic resource mobilization and engagement in private sector development,” the official told Reuters.
By tying funding to the World Bank’s China portfolio, former Treasury official Scott Morris told the Financial Times, the Trump administration is essentially “picking a direct fight with China.”
The United States has what amounts to veto power over the World Bank’s efforts to raise fresh capital. World Bank President Jim Yong Kim, who had requested the capital increase, disagreed with Treasury’s decision.
“For me the rationale for us working in China is quite clear: 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,” Kim said on Thursday.
By pushing the bank to further exclude China from Western-dominated lending institutions, the U.S. government will only hasten Beijing’s tendency to establish and strengthen parallel organizations beyond Western influence. Stung by years of Western refusal to alter voting rights in the World Bank to reflect China’s increased economic heft on the global stage, Beijing in 2015 launched the Asian Infrastructure Investment Bank.
Headquartered in Beijing, the AIIB seeks to meet the massive need for infrastructure in Asia — and has more capital than the World Bank. The United States declined AIIB membership, while its efforts to prevent Western allies from joining the bank failed.
Until this week, the World Bank had largely escaped the censure that President Donald Trump has directed at other prominent international organizations.
Campaigning on an isolationist, protectionist agenda, Trump entered office intent on abandoning or renegotiating any commitment which he viewed as a “bad deal” for the American people. Trump has disparaged the United Nations and NATO, torpedoed the Trans-Pacific Partnership, threatened to pull out of the North American Free Trade Agreement, and withdrawn the United States from UNESCO and the Paris climate agreement.
On Friday, he threatened to blow up the 2015 nuclear deal unless Congress gets tougher with Iran, which nearly everyone in the administration acknowledges is complying with the agreement.
In keeping with Trump’s “America First” platform, the president’s 2018 budget request also envisioned massive cuts to U.S. foreign aid, essentially discarding America’s 70-year tradition of assistance to developing and low-income nations. Congress rejected most of the cuts.
As both a conduit of development aid and a global multilateral organization, the World Bank makes an easy target for administration critics who want to ensure that any organization receiving U.S. support also backs the president’s interpretation of U.S. interests.
Kim had already made overtures to the Trump administration, perhaps out of a desire to gain its backing. In May, the World Bank collaborated with the president’s daughter Ivanka Trump to set up the Women Entrepreneurs Finance Initiative, with President Trump offering $50 million in funding for the project.
But by tying funding to the World Bank’s China portfolio, former Treasury official Scott Morris told the Financial Times that the Trump administration was essentially “picking a direct fight with China.”
