296. Memorandum From the Assistant Secretary of State for Economic and Business Affairs (McCormack) to the Under Secretary of State for Economic Affairs (Wallis)1
Attached you will find a letter which my staff wants you to send to Beryl Sprinkel2 recommending a more forthcoming position toward a World Bank management proposal to increase World Bank lending between 1982 and 1986 from $60 billion to $61.8 billion (the $61.25 billion figure in the memorandum understates the real request that is on the table).
This morning I called Jim Burnham, the U.S. Executive Director of the World Bank, to seek his views on the subject. He feels that you should not support the World Bank management request, stating that the main problem with the World Bank today is its misuse of its existing lending authority rather than a lack of sufficient capital. (For example, he says that last year $700 million of World Bank money went to finance oil and gas development that could have easily been financed by commercial banks.) Burnham states that the management request for a $1.8 billion increase is just the opening gun of massive campaign to greatly increase World Bank capital during the next twelve to twenty-four months. Burnham tells me that traditionally the World Bank increases its capital proportionately to increases in IMF capital. According to Burnham, by this formula proposals will be forthcoming for an increase in capital of the World Bank by $3 billion.
Burnham notes that Clausen and others have been talking about a $40 billion increase in World Bank capital, but feels that some of this talk is disingenuous and essentially an opening negotiating position. Moreover, the French are talking about a massive increase in World Bank lending but they do not appear to be prepared to allocate French funds for this purpose. The Japanese appear to be among the strongest proponents of a massive increase in World Bank capital. According to Burnham one of the reasons for this is because the Japanese felt slighted that they were not given a higher rating in voting power in the IMF recently and now want to upgrade their voting position in the World Bank. My guess is that the Japanese are also interested in trade [Page 736] opportunities that would be created by a massive increase in World Bank capital.
I am told that if we fail to keep step proportionately to any World Bank capital increase we would lose our veto over changes in the Articles of Agreement governing conduct by the World Bank. Today it takes 81 percent of the voting shares to change the Articles of Agreement. We currently have enough voting shares to prevent that 81 percent from being achieved. But if we fail to keep step with other countries in the World Bank replenishment, we could lose this veto. Personally, and without a great deal of research on this subject, I am not sure how important it is for us to maintain a veto in practice. It would appear to be very unlikely that some other major donor would not support the United States in objecting to something which would genuinely violate the integrity of the Bank as an institution or overall Western interests—but this is something I would want to look into more closely before being definitive. We do not now have any veto over individual projects proposed by the World Bank.
The World Bank currently has a policy of only permitting lending on a scale that would permit “sustainable lending” based on the Bank’s existing capital. This keeps some annual spending discipline on the Bank as an institution. Increasing the Bank’s lending limits from $60 billion to $61.8 billion would violate this principle of “sustainable lending.” This is another reason why Mr. Burnham opposes our supporting this proposal.
An argument which will be made for us to increase World Bank lending will be to enable it to finance world trade on a higher level, but as long as the World Bank continues to devote significant resources to such things as oil and gas lending which are eminently bankable commercially, it appears to me that the World Bank is merely substituting for commercial lending rather than expanding world trade.
Allen, I am not an expert on this matter. It may be in the end that our views on this issue will modify as new economic evidence comes to our attention, and there is absolutely no doubt in my mind that you and I will come under fierce pressure from this building on this issue. But while I feel that you and I should keep an open mind as new evidence comes in on the merits of a capital increase for the World Bank, and constantly keep reviewing our assessment, as of today I do not recommend that you sign the attached letter drafted by the staff.
We do have enormous leverage over our Allies and trading partners if we choose to use it. For example, we could threaten to impose tougher VRA’s on the Japanese or cut back on future Bank replenishments if one were in danger of being isolated in the World Bank on a truly vital issue.
- Source: Department of State, Files of the Under Secretary of State for Economic Affairs, W. Allen Wallis, Chrons; Memo to the Secretary/Staff and Departmental/Other Agencies; Memos to the Files; White House Correspondence, 1987–1987, Lot 89D378: Memos—Staff/Departmental 1982–1985. Secret; Eyes Only. Printed from an uninitialed copy.↩
- Not attached.↩