The World bank may reduce the price of loans for developing countires for the first in a decade

/INTERFAX-AFI, Washington, September 26, 07/ - For the first time in nearly a decade, the World Bank (WB) is poised to make significant cuts in the interest rates it charges China, Brazil, Mexico and other big developing countries to increased assistance to the world's poorest countries, The Wall Street Journal writes. According to bank officials, "as part of the compromise, the WB will contribute as much as 3.5 billion dollars to the International Development Association (IDA), a WB unit that provides grants and no-interest loans to the world's 80 poorest nations." The deal has been discussed for the past several months and showed the difficulties in achievement of the agreements on discords that exist from of old between poor and rich countries that belong to WB, and also the governments that have an intermediate position. WB finances its activities mainly by borrowing on global markets on very favorable terms as it is supported by governments of different countries and offers this capital at higher rates to the developing countries. IDA is traditionally financed by contribution of states, and then, money goes in the countries that are too poor to pay interest. Every three years, WB borrows new capital for IDA. For the next three-period that ends on June 30 of 2011, the bank plans to borrow an aid to the amount of $25-30 billion in comparison with $18 billion for the current period to cover its much increased payments for development projects and debt load easing. After the Asian crisis of 1997-1998, WB increased the interest rates on loans for countries with middle incomes by about 0.25 percent points, and has not changed them since that time despite of global economy's recovery. Nowadays, these states borrow capital at rates of about LIBOR rates plus 0.3 percent points. The have asked for lower rates since many years but the rich countries such as the U.S. and the poorest nations were against that as they thought, that would give an additional support to their slightly richer competitors. However, due to the efforts of the new head of the bank Robert Zoellick, in exchange for lowering interest rates to pre-Asian-crisis levels, Brazil, Mexico, China and other middle-income countries agree to support a substantial contribution to the IDA by the International Finance Corp. (IFC belongs to BW group). The middle-income countries disputed that for many years, as they wanted IFC to focus on financing the companies from these countries. The last year, IFC provided IDA with $150 millions for the first time for the goals of developing the private sector in the low-income countries. Within the achieved compromise, IFC will increase the allocations in IDA up to $1.75 over four years. According to WB representatives of high standing, Mr. Zoellick "believes in integration of poor, rich and middle-income countries as a measure to conduct a more pithy form of globalization". A source of the journal asked not to name it because the terms of the agreement are still to be clarified and have to be approved by Bank's Board that, as it is expected, would gather for meeting before the end of this week. The annual meeting of WB is scheduled on October 19, and a decision on that question should be taken prior to the meeting. [2007-09-26]