WASHINGTON — Moving into a political mine field, the Reagan Administration has decided to support an increase in capital funds for the World Bank to enable it to expand lending to the Third World, Treasury Secretary James A. Baker III announced Wednesday.
The move is likely to prove highly controversial in Congress, where lawmakers are sharply divided over World Bank loans to unfriendly countries and to developing nations that subsidize goods that compete with U.S. products. Rep. Jack Kemp (R-N.Y.), the conservative presidential candidate, immediately vowed to oppose the request.
"After years of talking about mending its ways, the World Bank is still in disarray," Kemp said. "It still does not have an effective strategy for encouraging growth in debtor nations. Until it devises such a strategy and stops merely adding to debt burdens, the World Bank should not get another dime."
Many legislators, seeking to boost American influence abroad, would prefer to funnel foreign aid directly from the United States to recipient nations. They are uneasy over how much extra money the United States will be asked to contribute to the World Bank at a time of high budget deficits.
Baker would not say how much additional funding the Administration would be willing to support. He said the total would be subject to negotiations that are expected to last as long as a year with the World Bank's other contributing nations.
Baker's announcement marks a shift for the Administration, which had refused for several years to agree to add more money to the World Bank's capital fund.
The Administration's previous posture was designed to prod the bank to rely more heavily on free-market policies rather than the traditional anti-poverty projects it pursued avidly while Robert S. McNamara served as its president from 1968 to 1981. But Baker said he is now satisfied with the World Bank's efforts to assume a greater role in helping to alleviate Third World debt problems.
"The bank has been doing an excellent job in promoting the types of investments and types of policy reforms that we think are essential to achieve sustained economic growth in the developing world," Baker said.
At a briefing for reporters, Baker said World Bank lending to major debtor countries has increased 40% in the two years since he unveiled his so-called Baker plan, which included an expanded role for the World Bank in alleviating the Third World debt problem. The Baker plan also aimed at restoring commercial bank lending to debtor countries, which by and large has not occurred.
Wednesday's announcement came unexpectedly, on the eve of the annual meeting in Washington of the World Bank and its sister institution, the International Monetary Fund.
But it seemed aimed at providing a shot in the arm to World Bank President Barber B. Conable Jr., who has been under heavy fire during his first year in office by critics who say he has botched a reorganization and failed to lead the massive institution in the new directions required by the debt crisis.
"We have always said the United States would be there when the need was there," Baker said. "We think the need is there now."
Difficult to Resolve
World Bank officials are relying on Conable, who was widely respected during his long service as a Republican congressman from New York, to overcome obstacles in Congress to an increased U.S. contribution to the bank.
But even with its fresh support from the Reagan Administration, the once-obscure World Bank is under pressures from different directions that will be difficult to resolve.
At the same time that it faces demands from the conservatives to promote free-market policies, the bank is under attack for moving away from its focus on poverty projects. Rep. Tony P. Hall (D-Ohio) released a letter Wednesday signed by more than 190 lawmakers calling for the bank to double its poverty program lending to 60% from the current 29%.
Seeks Substantial Increase
"We're going to be taking a close look at how the bank spends its money," Hall said. "While I don't oppose new money for the World Bank, we think it can do a lot better with the money it already has."
The World Bank, the largest international development institution in the world, relies primarily on capital pledges by the major industrial nations to finance loans to Third World nations for a wide variety of activities. Established after World War II to finance reconstruction of Europe and Asia, it soon began moving into Third World development.
Conable has been campaigning for a substantial increase in capital of $40 billion to $80 billion on top of the bank's current $94.8 billion.
The United States would be expected to pledge almost one-fifth of the total, but only a small portion of money would have to be appropriated by Congress. Of the $17.4 billion the United States has pledged since the bank was started 41 years ago, officials said, just $1.6 billion has actually been paid by the U.S. government.
The World Bank raises most of its capital by borrowing on world credit markets at relatively low interest rates because lenders know the loans are backed by the bank's member governments.