In mid-September, Arab media reported that the Gulf Cooperation Council countries were in talks with the World Bank about raising their capital contributions. This was confirmed by Senior Vice President and World Bank Group General Counsel Anne-Marie Leroy, who said the talks were meant to secure additional capital and would therefore increase the voting rights of the GCC, and that an announcement to this effect would be made in October.
But no announcement came. The World Bank may be in dire financial straits, according to statements made at the October World Bank Group and the International Monetary Fund meetings in Istanbul, but there is disagreement between developing countries and the bank’s biggest donors as to how soon more capital is needed, and where it should come from.
Representatives from both France and Great Britain, two of the bank’s largest contributors, said that they believe lending increases can go forward without additional capital. But World Bank President Robert Zoellick and representatives from many developing nations sounded the opposite note, predicting that without expedited gains in capital, the World Bank would have difficulty maintaining its current lending by the middle of 2010.
“The distribution of quotas should reflect the weights of its members in the world economy, which have changed substantially in view of the strong growth in dynamic emerging markets and developing countries,” said the G-20 leaders in a joint concluding statement after their Pittsburgh meetings in September.
Accordingly, capital increases would have to come from middle-income countries and not the now dominant West. In fact, the G-20 countries recommended that funding for the World Bank should shift by a measure of three percent toward credit-worthy developing countries and away from developed ones.
As it stands, the GCC voting block holds 3.88 percent of the total votes in the International Bank for Reconstruction and Development (IBRD), the oldest and largest lending arm of the World Bank Group, which provides relatively low interest loans to developing countries. It is these countries that were the most vocal in their call for more donor-money at the Istanbul meetings and it is this fund, the IBRD, that World Bank officials say needs new capital, and quickly.
A question of motivation
Both expert opinion and rhetoric from October’s World Bank Group-IMF meetings may point to the reasons why the GCC’s role in the World Bank will remain fixed while others’ will increase. Ibrahim Saif, secretary general of the Jordanian Economic and Social Council and expert in political economy, believes that GCC capital in the bank is holding steady, in part, because the countries themselves are not interested in playing a larger role in the global political scene.
“They are quite happy to just work while it’s happening and not get engaged with the rest of the world,” he said. “The BRIC [Brazil, Russia, India and China] were quite aggressive. I think they were very clear that they really wanted to increase their shares.”
Saif said that no such desire came from the GCC and thus no increase was made.
In November 2008 British Prime Minister Gordon Brown saw a “lukewarm reception” when he visited the Gulf and suggested that the GCC contribute “hundreds of millions” to IMF bailouts, said Gulf Research Center Chairman Abdulaziz Sager in an analysis piece. He said that any humanitarian or geo-political aspirations that the GCC may have held evaporated with the credit crisis.
Total World Bank lending by region: fiscal 2009
Share of $46.9 billion total
Total World Bank lending by theme: fiscal 2009
Share of $46.9 billion total
Total World Bank lending by sector: fiscal 2009
Share of $46.9 billion total
Singular ambition
On this issue of international contributions however, the GCC is not completely in agreement as Saudi Arabia’s role in both the World Bank and the IMF far exceeds its Gulf neighbors. GCC capital in the IBRD totals approximately $7.5 billion, and $5.4 billion of this, or 72 percent, comes from Saudi Arabia.
“Saudi Arabia wanted to play a role but Saudi Arabia is like a single player,” said Saif. “The other GCC countries are small and they don’t see the benefit of having more stake in the World Bank. It seems that they are quite satisfied with their current role.”
Saudi Arabia has been negotiating a sizeable additional contribution to the IMF, rumored at $10 billion.
“If you look at the track record of Saudi since the 70s you’ll see the willingness to support the IMF when others were unwilling or unable,” Muhammed al-Jasser, governor of the Saudi Arabian Monetary Authority, told The Wall Street Journal last month.
Al-Jasser also argued that contributions to the two international lenders should not necessarily be determined by GDP, as global financial prominence is a better gauge, which is particularly relevant to Saudi Arabia, as it is the most over-represented country in terms of the ratio of international donations to GDP.
Cool wind from the West
In addition to the speculated lack of desire for greater geo-political influence on the part of the GCC, large Western donors have also hinted their objections to a capital increase originating from the Gulf.
At a meeting of the World Bank’s development committee, United States Treasury Secretary Timothy Geithner said, “We will be seeking critical institutional reforms in any consideration of additional resources.”
Saif believes this statement would definitely apply to the GCC.
“It’s not new that the GCC countries over the last few years came under huge pressure to become more transparent about their budgeting and about their oil revenues and how they distribute them,” he said. “Secondly, they also came under pressure as far as their investments. They are not really willing to open their books.”
In fact, a lack of transparency in the Gulf’s financial sector has been blamed for the falsely high credit ratings given to the countries’ financial institutions, leading up to and even after the start of the global financial crisis.
More green in the spring
At the suggestion of the World Bank’s biggest donors, a formal review of the bank’s financial needs will take place in the spring of 2010 in order to address the World Bank’s proposal of an overall capital hike of $3 billion to $5 billion for the IBRD.
Saif, however, has doubts that this will change the role of the GCC.
“I think it will remain the same. I think that the GCC countries are not very eager and not very aggressive about increasing their weight in the World Bank,” he said.
World Bank officials declined to comment for this article.
