Increase in World Bank capital: a test of US leadership

THE global leadership of the United States can no longer be taken for granted. While the US has enjoyed a commanding share of world production and technology since the end of World War II, in the coming decades it will undoubtedly have to compete for global influence with a more united Europe and an economically strong Japan. One arena where US leadership is being tested is in its commitment to the World Bank. The World Bank is today the largest multilateral financial institution, lending $120 billion annually to promote economic development and growth in the third world. The US was the principal force in founding the World Bank in 1944 and has always been its largest shareholder. For more than 40 years it has provided the leadership that has made the World Bank an outstanding success.

The immediate issue is one guaranteed to glaze the eyes of many Americans - whether this country should participate in a $75 billion general capital increase for the World Bank.

But the deeper issue is the future of the US role in the world's preeminent multilateral financial institution.

The questions the US must confront are these: To what degree does the end of US leadership in the bank affect US global influence? What effect will the withdrawal of its leadership have on America's capacity to trade and compete in an increasingly interrelated global economy? How would the end of US leadership in the bank affect the US's ability to shape bank policy that is responsive to US economic interests? To whose interests does the leadership accrue? And what are the consequences?

The $75 billion general capital increase was approved unanimously Feb. 19 by the World Bank's governing board. It has since been ratified by more than 140 nations - including all major powers except the US - together representing well over the 75 percent of existing shares needed to put it into effect. Therefore, the increase will go forward with or without US support. Ratifying nations have indicated they will begin making their contributions. The bank hopes to raise $10 billion by the end of the year.

If the US does not participate in the increase, its voting power within the bank will be drastically reduced - projected to 11 percent by September 1993 - at which point it will lose its veto power. Fifteen percent is required to maintain the present US veto over charter decisions. If the US does ratify the increase, its voting power would be about 18 percent at the end of six years (today it's at 19.2 percent). The US veto does not apply to day-to-day approval of loans. But if it does not meet its share of the financial burden, this country's influence over loan policy would surely be diminished.

By tradition, the president of the World Bank has always been an American. But as the financial shares of Europe and Japan have grown, that tradition has been questioned and will undoubtedly be reviewed in the future, especially if the US share in the World Bank is reduced.

Aside from maintaining US global leadership and influence in the world community, there are many reasons for the US to support the general capital increase:

The proposed US cash outlay is $70 million a year for six years - a relatively small amount that would be highly leveraged. Combined with the contributions of other countries, plus the increased borrowing it would permit, it would allow the World Bank to increase its development lending from some $15 billion during the fiscal year to $24 billion by 1994.

The US has a huge stake in the economic development of the third world. It is there that 90 percent of the world's population growth by the end of the century will take place. It is there that the potential is greatest for new markets for US agricultural goods and technology. But people in developing countries can't buy US goods if they don't have the income. The World Bank is the world's most important institution for providing capital to developing countries.

In more political terms, the World Bank has been a leader in encouraging developing countries to adopt market-oriented economic reforms favored by the US. It has been a strong advocate of more-open world trade.

Last year more than 900 US companies from 47 states earned more than $1.6 billion in exports through international competition bidding as part of projects funded by the World Bank and its affiliate, the International Development Association; $1.6 billion is more than the total dollar amount the US has paid into the bank in its entire 40-year history.

Ratification of the capital increase is now before the Congress. Some traditional World Bank supporters there have refused to approve US participation unless the bank adopts new policies toward third-world debt. Others criticize World Bank loans that they believe create competition for US industries and farmers. These voices have been added to longtime opponents of international development lending.

While all the arguments for new and expanded policies to deal with third-world debt are important, even urgent, the overriding reason the US must approve the bank's general capital increase is that of leadership. As we enter a new era of increased global economic interdependence, now is not the time to abandon the multilateral goals that have served us so well for half a century and which are so critical to future well-being.