World Bank shareholders doubt cash need

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By Sandrine Rastello and Timothy R. Homan BLOOMBERG NEWS

The World Bank's biggest shareholders expressed doubt that the lender needs a capital increase, asking for more evidence before making a decision.

While a World Bank report shows it needs a capital increase of between $4.6 billion and $11.1 billion to meet developing countries' financing needs, finance ministers from France to the United States stopped short of endorsing a call for more money.

The United States wants to be "fully confident" that any new funds will be managed well and used effectively, Treasury Secretary Timothy F. Geithner said Monday. His French counterpart, Christine Lagarde, said Sunday that the World Bank "has a number of options" and a capital increase "isn't justified at this time."

World Bank President Robert B. Zoellick wants the bank's shareholders, who are discussing the proposed capital increase at their annual meeting in Istanbul this week, to make a decision on additional resources by April. He warned Monday that his institution will "have to ration" loans by the middle of next year and limit credit to the lowest-income countries if the bank runs low on funding.

Mr. Geithner said the United States, the lender's largest shareholder, wants the World Bank and other development banks to improve their management before the United States will sign off on a capital increase.

"Countries are facing severe fiscal constraints at home," Mr. Geithner said. "We will be seeking critical institutional reforms in any consideration of additional resources."

Canadian Finance Minister Jim Flaherty said the proposal "needs more work" and "there is time to work" on it.

Emerging economies such as China and Brazil backed a capital increase, with Brazilian Finance Minister Guido Mantega pressing for a decision by April, when the World Bank holds its next meeting.

"We now have concrete proposals on the basis of which we should arrive at a decision very quickly," Mr. Mantega told the Development Committee, a forum of the World Bank and the International Monetary Fund, in Istanbul on Monday.

The World Bank study shows its division that lends to countries, the International Bank for Reconstruction and Development, needs between $2.8 billion and $8.7 billion additional funds. The International Finance Corp., the private-investment arm of the World Bank, needs between $1.8 billion and $2.4 billion. The total amount needed would depend on whether the recession lingers and the World Bank raises fees, the study said.