By Adam Lerrick
Posted: Monday, September 11, 2006

"We are facing...competition [from the capital markets]. I think it's important that we effectively compete. Increasingly,...if the fight against poverty is successful, more and more countries will be in this middle-income category, and if this institution is going to remain relevant to the world, it obviously needs to be relevant to the middle-income countries."
- World Bank President Paul Wolfowitz, September 22, 2005

The World Bank is in big trouble. Major middle-income countries, the cream of the Bank's portfolio, are curbing their borrowing and paying down their balances, setting off alarms at the Bank. Net loan flows have shifted $30 billion over the last seven years, from positive to negative. Instead of drawing a net $14 billion from the Bank in 1999-2002, these nations repaid a total of $15 billion in 2003-2005. The cause is clear: The interest subsidy embedded in Bank loans, a compelling 12 percent per annum on average in 1999, has now shrunk to less than 2 percent as emerging nations have gained increasingly greater access to private capital. The difference is no longer enough to persuade finance ministers to realign their economic priorities with the social agendas of the Bank's rich members.

For years, the Bank has been in the business of lending at highly subsidized rates to non-needy nations. Ninety percent of Bank loans now go to just 27 borrowers, 10 of these accounting for 75 percent, a list that closely parallels private sector choices, and for these nations the Bank contributed a mere 1 percent of the average net $200 billion that the capital markets have provided each year over the last decade...

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Posted by rjorr at September 11, 2006 8:47 AM