June 13, 2010 / 12:38 PM / 10 years ago

Analysis: Donor cuts add pressure to World Bank aid drive

WASHINGTON (Reuters) - The World Bank will need to get creative in raising funds to help the poorest countries now that the richest ones are feeling pinched themselves.

In 2007, the World Bank collected $42 billion for the International Development Association, or IDA, the world’s largest fund for the poor.

To try to match that total this year, it is tapping a deeper pool of emerging market donors, promising more strenuous oversight of how the money is used and is even prepared to let fiscally strained countries stretch out installment plans.

“Donors are under stress,” said Whitney Debevoise, a former U.S. executive director to the World Bank who is now at the Washington-based law firm Arnold & Porter LLP.

“I don’t think they will talk about anything less (than 2007’s fund-raising total) until it becomes obvious that isn’t going to become the case. I do think it will be difficult.”

When IDA donors meet in Mali’s capital Bamako on June 16 as part of the once-every-three-years fund-raising, the number of donor countries will have grown to about 50, five more than in the last round when China participated for the first time. Chile, Argentina and Peru are among the newcomers.

Countries have expressed interest in devoting funds to fragile states emerging from conflict, reducing maternal mortality and helping the poor cope with climate changes. There is also a push to create a permanent mechanism within IDA to help poor countries cope with future crises.

But even the most noble goals can fall victim to domestic budgetary needs. Most of the world’s biggest aid givers are under big pressure to cut spending, with Greece’s debt crisis serving as a reminder of the risks of a failure to act.

The last IDA negotiations saw Britain overtake the United States as IDA’s biggest donor. While the new British government has pledged “fundamental change” on aid policy, for now that does not appear to mean less foreign aid.

It will also be the first IDA negotiations for the Obama administration, which is demanding 5 percent budget cuts across many agencies.

Still, a communique by finance ministers from the Group of 20 major developed and developing nations in South Korea on June 5 pledged to work toward an “ambitious” IDA round. G20 leaders, meeting in Canada on June 26-27, are expected to repeat that commitment.

SCARCE AID DOLLARS

Axel van Trotsenburg, the World Bank’s chief negotiator for IDA, said donors recognize that scaling back aid would undermine decades of progress in poor countries but his agency also understood countries were operating under constraints.

“We are going to be in a listening mode but we also need as an organization to lean forward to see how we could help industrialized countries deliver,” he said.

While donor meetings had been extremely constructive so far, he said the World Bank needed to work with countries to find a “winning formula” that would meet the needs of all sides. One idea was allowing countries to stretch out donations over a longer period of time, he said.

Debevoise, the former U.S. representative to the World Bank board, said Western donors facing budget pressures at home will insist on better aid tracking to ensure the best results.

“Politicians are not only going to want to hear that their aid is achieving results but they are going to want to see the results being measured,” he said.

China may be asked to dig a bit deeper. It donated $30 million in 2007, a sizable sum for a country that still has its own problems with poverty but a far cry from the $100 million that Brazil donated.

The World Bank may have a bit more leverage over China now that its voting power inside the lending institution has been increased. It is not just money the World Bank wants but also China’s development expertise.

MORE WITH LESS

Other aid experts said the World Bank should consider ways to do more with less.

Ben Leo, an Africa expert who worked in the White House and U.S. Treasury Department and is now at Washington’s Center for Global Development policy think-tank, has proposed changes he believes could mobilize an additional $7.5 billion for poor countries — $5.5 billion of that for Africa.

In essence, Leo is proposing the Bank’s fund for wealthier countries, the International Bank for Reconstruction and Development, provide the loans to IDA’s better-off countries such as India and Vietnam. IDA would pay the IBRD’s interest costs, thereby keeping the loan affordable.

“It would dramatically increase the resources for the poorest countries and hold the better-off countries harmless in terms of the aid volumes they receive from the World Bank, as well as the terms of that assistance,” said Leo.

Despite its booming economy, India has continued to qualify for IDA loans because of its large impoverished population.

If countries need any more incentive to open their wallets, Debevoise noted that a 2015 deadline to meet U.N. Millennium Development Goals on such things as poverty, health, education and gender was fast approaching.

“This is a last chance to accelerate progress to work on achieving the Millennium Development Goals,” he said.

Editing by John O'Callaghan

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