Thursday, September 27, 2007

Strong finances allow the World Bank to cut loan fees


-World Bank cuts loan fees
-International Finance Corp.

The World Bank gave emerging countries like China and Brazil a break on Thursday when it cut the price of loan charges by 25 basis points. This is the first such reduction in a decade. This is part of a broader Bank strategy to increase the amount of business it has with what it considers “middle income” countries, like China, Russia and Mexico

Additionally, the Bank announced it would double its current commitment to the International Development Association, a facility whereby the Bank provides loans to its poorest of borrowers; this doubling will amount to approximately 3.5 billion USD in resources the Bank will provide to the Association. The Bank hopes that its increased contributions evinces a stepping-up-to-the-bat and thus a challenge to donor countries to also increase their contributions. Particularly, the Bank and others hope to convince China to begin increasing its role with the Bank as a donor

The Bank’s ability to increase its involvement with emerging and poor countries is believed to be a result of its profitable venture in the private-sector vis-à-vis its International Finance Corp. The latter aims to develop the private sector in various needy countries.

- Question: Will the Bank need to offer incentives to encourage donor countries to step up their contributions, or is the gesture of the Bank in increasing its own contributions persuasive enough?

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