Lawmakers weigh value of development aid

WASHINGTON Wed Jul 27, 2011 7:59pm EDT

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WASHINGTON (Reuters) - Trimming U.S. funding to the World Bank and other global lenders would reduce American influence in developing countries and give China a competitive edge, lawmakers were told on Wednesday.

With Democrats and Republicans haggling over raising the U.S. debt ceiling and spending cuts, Congress is now weighing cost-saving measures that could reduce the U.S. contribution to the World Bank and other development banks.

The Obama administration is requesting $3.3 billion for multilateral development bank-related commitments for fiscal year 2012.

Already, the House appropriations committee, which sets the budget for government spending, has proposed slashing $729 million from last year's federal budget for multilateral assistance programs.

A bill under consideration by the House would eliminate U.S. funding for the World Bank-administered Clean Technology Fund and Strategic Climate Fund, which promotes cleaner energy technology and greenhouse gas emissions cuts in poorer states.

"We're definitely in a what have you done for me lately moment," Ed Perlmutter, a Democrat from Colorado, told a House Financial Services Committee hearing considering whether World Bank and other programs are generating jobs.

With unemployment at a lofty 9.2 percent and economic growth at less than a two percent annual rate in the second quarter, lawmakers are eager to show economic gains before a general election in late 2012.

Gary Miller, a Republican from California, said while the United States recognized its role in helping developing countries its focus had to be on cutting the huge U.S. public debt burden and spending.

"We cannot lose sight of the fact that these requests (for funding) are coming at a time when our country must focus on getting our own massive debt under control," Miller said.

Development experts testifying at the hearing noted that the U.S. spends less than 1 percent of its annual budget on foreign assistance and development banks are just a fraction of that 1 percent.

James Harmon, chairman of Caravel Management and former president of the Export-Import Bank of the United States, said cutting funding to development banks to try to balance the U.S. budget would be a "short-sighted" and counter-productive for the U.S. economic recovery.

He said global development lenders played a vital role in building new markets and the rise of a global middle class in developing nations would increase demand for American goods.

"This will drive the future of U.S. production and the next wave of job creation here at home," he told lawmakers.

CHINA

Harmon said China operated under a different set of rules to the United States in developing countries, and without the development banks U.S. firms would be unable to compete.

"The only way we can come close to competing with China is by keeping the World Bank and other multilateral development bank strong because we will have a much better chance of winning business for the U.S.," he said.

Ben Leo, a research fellow at the Center for Global Development, and a former Treasury and National Security Council official, said development banks' role in boosting growth in emerging economies directly impacted U.S. firms.

He said U.S. companies benefited from the transparent and fair procurement system offered by development banks for projects in emerging economies.

"The procurement standards are a great equalizer and an opportunity creator for U.S. firms, so the more money that is channeled through those systems is good for U.S. business," said Leo, noting that U.S. firms directly secured over $1.6 billion in World Bank contracts over the last decade.

Jim Kolbe, former Congressman and currently a senior fellow at the German Marshall Fund, said it would be useful to look at which of the four development banks made better use of donor contributions and lost the least to corruption.

(Reporting by Lesley Wroughton; Editing by Anthony Boadle)

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