World Bank Chief Warns Of Funding Constraints

World Bank president Robert Zoellick warned Friday that the international lender could find money running tight within a year if crisis-driven demands on its funding keep up at their record pace and the richer countries fail to stump up more cash.

Speaking to reporters before the start of annual meetings of the World Bank and International Monetary Fund annual meeting here, Zoellick said the World Bank deployed a record $33 billion in its fiscal year to June 2009 and is already on course to lend a further $40 billion this year.

At present, the World Bank has $100 billion to lend to middle-income countries _ the poorest countries get lending from the World Bank by different means and at different rates. If, and when, that money runs dry, the Bank may have to resort to rationing.

"By the middle of next year, we will start to face serious constraints," he said. "We are seeing, as we look into 2011, that we'll go through that $100 billion and probably beyond."

He said that the World Bank would be a worthy recipient of funds as it had entered the financial crisis in a well-capitalized position and was implementing reforms to make it more efficient and more self-sufficient, such as increasing the interest rate on loans and increasing the voice of develping countries. The Group of 20 rich and developing countries agreed last week to to increase the share of developing countries in the World Bank by at least 3 percentage points by early next year to 47 percent.

"I think we have a good case to make," said Zoellick. "We have the ability for another strong year, but our shareholders, both developed and developing countries, are going to have to calculate how close they want to run us to the edge in terms of being able to support developing countries given an uncertain year in 2010."

The World Bank seeks to help poor and developing countries with low-interest loans, interest-free credits and grants to pay for investments in education, health care, infrastructure, agriculture and natural resources management.

The pressures on the World Bank have escalated as the financial crisis and the ensuing global recession hit developing countries particularly hard. Prices of commodities such as oil and metals _ often their economic mainstay _ fell and trade slumped.

Those pressures are evident in the money that the bank is burning through. In the fiscal year to June 2008, it handed out some $13.5 billion _ in one week in September 2009 alone, loans totaled just over $7 billion, including a $4.4 billion set of loans to India.

Zoellick said he will be arguing that it is to the benefit of the more advanced economies to provide the World Bank with more resources, even though their budgets are strapped as tax revenues have collapsed during the recession and spending has increased on stimulus packages and higher welfare payments.

"This is not a question of charity, it a question of self-interest in that everybody is wondering where the means will come from to make a stronger recovery," he said.

He said developing countries have room to expand domestic demand and replace likely lower levels of consumption in the U.S. "if they get the resources."

Zoellick said talks are "well-advanced" with the organization's 186 countries on a possible capital increase of $100 billion over the next three years.

Elsewhere, the World Bank's chief warned that the major danger in the world at the moment is that the fledgling recovery reduces global cooperation and the need for reform, particularly in the financial sector.

"The danger today is not one of a collapsing economy, it's one of complacency," he said.

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