The Development Committee of the World Bank met today at Washington DC and took historic decisions relating to increasing the financial capacity of the Bank and enhancing the role of developing countries in its governance. These decisions would be of great benefit to India – both as a borrower from and as a shareholder of the Bank.
Changes in the World Bank’s Voting Structure
The changes in the shareholding structure of the Bank would make India one of the important shareholders in the Bank. While there is an overall shift of 3% vote share to developing countries bringing their total vote share to 47%, India would now be the 7th largest shareholder in the Bank. In recognition of the global economic changes that are taking place, the voting power of countries like India, China, Brazil, Indonesia, Mexico and Turkey has increased while that of some of the major European and other countries that have traditionally dominated international finance like UK, France, Germany, the Nordic and Benelux countries, Japan, Australia and Canada, has gone down. As a result of this change, India would go ahead of Russia, Canada, Australia, Italy and Saudi Arabia in voting power.
These changes reflect the rapid growth of the Indian economy in the past decade and its rising economic weight in global affairs. The Bank has also agreed to review its shareholding five years hence and as India’s economy grows further, this should lead to a further improvement in India’s relative importance.
India’s shareholding in the Bank had been declining since the 1970s and this trend has been reversed for the first time in a generation.
Enhancing the Bank’s Capital
The Development Committee also agreed to raise the capital base of the Bank through a General Capital Increase. This increase is taking place after a gap of over 30 years. There is agreement to raise the authorized capital of the Bank by $ 58 billion with a paid in portion @ 6% amounting to $ 3.5 billion. The Bank is restricted by its Articles to restrict its total outstanding loan commitments to its total authorized capital. As a result of the increase in demand for Bank assistance as a result of the crisis, it was likely that the Bank would have reached its Statutory Lending Limit in a few years. This would have constrained the Bank’s lending capacity and there would have been a decline in Bank assistance to countries.
The increase in its capital base, along with the capital that would flow in as a result of the realignment in shareholding, would allow the Bank to lend an additional $ 86 billion. As one of the largest borrowers of the Bank, India also would be able to secure additional assistance from the Bank. The enhanced lending capacity would enable India to receive additional assistance to the extent of $ 7 – 10 bn in the coming years.
India’s remarks on the decisions
In his remarks at the DC meeting, the Finance Secretary said that these changes “are transformative in nature and will reposition the World Bank Group in the international financial architecture. Taken collectively, they will strengthen the role the World Bank Group in being an effective multilateral instrument for eradicating poverty, achieving the MDGs, supporting international efforts to manage global public goods, and most importantly, keeping it relevant in a dynamic world.”
He said that “We are taking momentous decisions today, decisions that will set the direction of this unique institution for many decades to come. Our decisions will ensure that the World Bank Group continues to play a lead role in eradicating poverty and fostering development globally, that its storehouse of knowledge and resources is put to best use. By giving the World Bank Group a new sense of purpose and direction with enhanced governance and strength, we will ensure that the vision of its founding fathers is fulfilled”.