Day: April 22, 2018

The World Bank’s shareholders on Saturday endorsed a $13 billion paid-in capital increase that will boost China’s shareholding but bring lending reforms that will raise borrowing costs for higher-middle-income countries, including China.

The multilateral lender said the plan would allow it to lift the group’s overall lending to nearly $80 billion in fiscal 2019 from about $59 billion last year and to an average of about $100 billion annually through 2030.

“We have more than doubled the capacity of the World Bank Group,” the institution’s president, Jim Yong Kim, told reporters during the International Monetary Fund and World Bank spring meetings in Washington. “It’s a huge vote of confidence, but the expectations are enormous.”

The hard-fought capital hike, initially resisted by the Trump administration, will add $7.5 billion paid-in capital for the World Bank’s main concessional lending arm, the International Bank for Reconstruction and Development.

Its commercial-terms lender, the International Finance Corp, will get $5.5 billion paid-in capital, and IBRD also will get a $52.6 billion increase in callable capital.

Lending rules

The bank agreed to change IBRD’s lending rules to charge higher rates for developing countries with higher incomes, to discourage them from excessive borrowing.

IBRD previously had charged similar rates for all borrowers, and U.S. Treasury officials had complained that it was lending too much to China and other bigger emerging markets.

U.S. Treasury Secretary Steven Mnuchin said earlier Saturday that he supported the capital hike because of the reforms that it included. The last World Bank capital increase came in 2010.

Cost controls

The current hike comes with cost controls and salary restrictions that will hold World Bank compensation to “a little below average” for the financial sector, Kim said.

He added that there was nothing specific in the agreement that targeted a China lending reduction, but he said lending to China was expected to gradually decline.

In 2015, China founded the Asian Infrastructure Investment Bank, and lends heavily to developing countries through its government export banks.

The agreement will lift China’s shareholding in IBRD to 6.01 percent from 4.68 percent, while the U.S. share would dip slightly to 16.77 percent from 16.89 percent. Washington will still keep its veto power over IBRD and IFC decisions.

Kim said the increase was expected to become fully effective by the time the World Bank’s new fiscal year starts July 1. Countries will have up to eight years to pay for the capital increase.

The U.S. contribution is subject to approval by Congress.
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The European Union and Mexico reached an agreement Saturday on a new free trade deal, a coup for both parties in the face of increased protectionism from the United States under President Donald Trump.

Since its plans for a trade alliance with the United States were frozen after Trump’s election victory, the EU has focused instead on trying to champion open markets and seal accords with other like-minded countries.

The agreement in principle with Mexico follows a deal struck last year with Japan and comes ahead of talks next week with the Mercosur bloc of Argentina, Brazil, Paraguay and Uruguay.

“With this agreement, Mexico joins Canada, Japan and Singapore in the growing list of partners willing to work with the EU in defending open, fair and rules-based trade,” said European Commission President Jean-Claude Juncker.

For Mexico, a deal with the EU is part of a strategy to reduce its reliance on the United States, the destination of 80 percent of its exports. That has become more urgent, given Trump’s push to rewrite the North American Free Trade Agreement.

The EU and Mexico wanted to update a trade deal agreed to 21 years ago that largely covers industrial goods. The new deal adds farm products, more services, investment and government procurement, and include provisions on labor and environmental standards and fighting corruption.

The European Commission said that, under the deal struck Saturday, practically all trade in goods with Mexico will be duty-free, including for farm products such as Mexican chicken and asparagus and European dairy produce.

The deal will for example cut Mexican tariffs of up to 20 percent on cheeses such as gorgonzola and increase EU pork exports, the Commission said. 

It will also allow Mexican companies to bid for government contracts in Europe and EU companies for those in Mexico, including at the state level.

Mexican Economy Minister Ildefonso Guajardo said both sides had achieved a major update of their original accord.

“It needed to be more ambitious in the agricultural sector, it needed to be more ambitious in services, it needed to be more ambitious in many of the elements that in the end we managed to agree on after two years of work,” he said.

Guajardo said the deal would grant his country better access for products including orange juice, tuna, asparagus, honey, egg white albumin, as well as “equitable access” for meat products.

It is also set to recognize “geographical indications” for certain food and drink, a key EU demand.

Such indications protect agricultural produce, for example, dictating that the term “champagne” can only be used for sparkling wine from northern France.

It was not clear, however, how the divisive issue of “manchego” cheese had been settled. The EU says the term should only apply to sheep’s milk cheese from central Spain, but Mexico has its own “manchego” made from cow’s milk.

Negotiators from both sides will continue to work on technical details to produce a final text by the end of the year.
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