Why Cripple the Multilateral Banks?

At their summit in Venice, the leaders of the seven major industrial countries repeated their obligatory statement of “strong support” for the multilateral development banks, particularly in dealing with the debt crisis. But disputes in Congress and the executive branch threaten to block expansion of these institutions, which are needed now more than ever. The fabric of multilateral development cooperation, woven over the last four decades under American leadership, is in danger of coming unravelled, jeopardizing a range of vital American interests across the developing world.

The Administration is at loggerheads with Latin America over expansion of the Inter-American Development Bank. Almost two years ago, Treasury Secretary James A. Baker III proposed a plan that implicitly gave the bank a major role in addressing Latin America’s debt problems. Now the Treasury is refusing to negotiate an increase in the IDB’s resources unless its loans are, in effect, subject to a U.S. veto. Both Latin American governments and the bank’s European members oppose the U.S. demand, and an urgently needed increase in the institution’s capital now seems to be a dead issue. Indeed, Baker withdrew the U.S. contribution to the bank from the Administration’s proposed 1988 budget.

On another front, the Treasury reportedly is raising objections to increased Japanese contributions to the Asian Development Bank, which were offered in response to demands by the United States and others that Japan use some of its surpluses to help developing nations. On the surface, the debate is over what conditions will be put on ADB loans. In reality, the issue appears to be the Japanese government’s belief that its increased contributions should give Japan a greater voice in the bank’s decision-making.

The World Bank is a different case but the impact is much the same. To its credit, the Reagan Administration agreed last year to an enlargement of the bank’s International Development Assn., which provides badly needed long-term, low-cost loans to the world’s poorer countries, particularly sub-Saharan Africa. Congress has been asked to provide the U.S. share--$950 million a year for the next three years--plus more than $200 million in arrears from previous U.S. commitments to the development group. Unfortunately, it is highly unlikely that Congress will approve the amounts pledged, given the impasse on budget reduction that exists between the legislative and executive branches.

Why are these issues now so important? Political trends in the developing countries are running our way and American relationships with these nations have undergone significant changes, particularly over the last few years. In Latin America and the Philippines, welcome steps are being taken toward democracy, and in Africa a number of governments are taking tough choices on economic reforms.

Economics are much more important to U.S. interest in the developing world than are immediate threats to military security. The United States, itself now a major debtor country, faces a trade deficit that shows only only a few signs of shrinking. The health of the U.S. banking system rests heavily on the ability of developing countries to service their debts. And U.S. exporters have seen sales drop precipitously as developing economies stagnate.

The multilateral development banks certainly are not perfect institutions, but they are the best we have. Their activities support a range of American economic and political interests, among them restoring global growth (and thus U.S. export markets) in Latin America, addressing poverty in South Asia and sub-Saharan Africa, and supporting political and economic reforms in many countries. Through such activities the development banks help meet U.S. long-term security interests very well.

Why then is U.S. participation in question? Because decision-makers in Congress and the executive branch have not adjusted to a world in which the United States’ long-term economic, political and security interests in the developing countries are inextricably interlinked and need to be balanced against short-term economic and political interests. Even after Gramm-Rudman-Hollings cuts, there is still a considerable amount of money in the foreign-aid budget--last year the budget was 26% higher than in 1980--but decision-makers give higher priority to aid to the Middle East and to Central America than to financing the development banks.

Moreover, the United States has yet to establish a style of cooperative leadership that balances our still considerable economic and political weight with the emergence of new powers. Thus we refuse the Japanese a larger voice in decision-making in return for their greater financial contributions.

These are habits we can no longer afford. This country now has a range of very important interests in the developing world that demand priority. Expanding the activities of the multilateral development banks would be a good place to start.