Treasury slams World Bank lending to rich countries like China

World Bank lending to countries like China that are rich enough to finance their own development hurts poor countries that need help, a senior US Treasury official said Wednesday.

David Malpass, Treasury's under secretary for International Affairs, cited China as a prime example of the practice, as the World Bank's biggest borrower with $2.4 billion in loans this year.

The Trump administration will push the World Bank to move countries towards graduation, as their economies grow and they are able to access private sources of financing, he told a House subcommittee.

"Many graduation-eligible countries, even those with strong market access, have continued to demand (World Bank) financing," he said in prepared testimony. "Adherence to the graduation policy has progressively weakened."

Malpass said that since 2009, countries eligible for graduation from World Bank aid have received, on average, 40 percent of the institution's lending. Currently 25 countries have incomes above the graduation threshold, and six are considered high income, exceeding $12,475 per capita.

However, income is only one factor taken into consideration when the World Bank decides whether to graduate a country. And some countries that graduated had to resume borrowing, including South Korea during the Asian financial crisis of the 1990s.

The current income level to begin to consider graduation is $6,895 per capita, and while Malpass singled out China, it was just over $8,200 last year. Uruguay was nearly double that figure at $15,200, according to World Bank data.

A World Bank spokesman told AFP the institution's shareholders -- of which the United States is the largest -- "are engaged in ongoing discussions over how to support countries in moving up the development spectrum to increase their contribution to global growth and stability" and to "maximize finance for development."

Move to graduate

Malpass, however, said the World Bank has failed to follow its own guidance and pursue discussions with countries ready to graduate, to phase them out of the lending program.

"Treasury has not found these graduation discussions to be serious or meaningful," he said. "We have strenuously argued for a more rigorous, transparent, and rules-based process."

He acknowledged that lending to richer countries helps the quality of the institution's portfolio, but said, "We think the World Bank can do a better job meeting its commitments to poorer countries while still pursuing a financially sound business model."

"An overriding objective for the administration is to ensure the World Bank is directing its resources to the people who need them most in the countries with the least access to private capital."

Malpass, who was a senior economic advisor to President Donald Trump during his election campaign, also raised concerns about China slowing the pace of its economic reforms.

While Beijing has made some progress in promoting consumption and addressing financial sector risk, he said, the US is "concerned that the liberalization seems to have slowed or reversed."

"China's unfair trading practices are unsustainable and harmful to the growth and prosperity of the US and many other nations," he said.

"The administration is committed to achieving a fair and reciprocal trading and investment relationship with China, including through market-based reforms."