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World Bank Poverty Loans Bestowing Billions on Prospering India, China

February 05, 1996|JIM MANN

WASHINGTON — This is the story of what may well be the biggest sweetheart deal in the world today.

It is the tale of how billions of dollars in World Bank interest-free loans, designed to help the poorest countries of the world, are instead going to two countries--China and India--that are, to their credit, increasingly able to help themselves.

The World Bank's interest-free loans to China, in particular, verge on the ridiculous. At the moment, China has more than $70 billion in foreign-exchange reserves, among the largest in the world.

In 1994, China attracted more than $33 billion in foreign investment, an amount so huge that it has prompted the jealous and embittered Russian ambassador to Washington, Yuli M. Vorontsov, to remind American audiences that China is "still a Communist country."

And yet, in that same year, China obtained $925 million in interest-free loans from the World Bank's International Development Assn., which was designed to lend money to countries so impoverished that they can't borrow from anywhere else.

That figure made China tops in the world in getting these poor-nation loans. And in 1995, its loan amounts ranked second, behind India.

These two countries are taking up loans that might be directed to those who most need the money today. In particular, the money might be directed to Africa, the only region of the world where the numbers of poor people are expected to increase over the next decade. Or more of it might go to some of the struggling new countries of the former Soviet Union.

The World Bank's IDA loans are for periods of 35 to 40 years, with no interest and a 10-year grace period. The money comes from contributions from wealthier countries, led by the United States, Japan, Germany, France and Britain. The loans go only to countries where the per-capita income is less than $835 a year.

For many nations, getting these loans is of critical significance. Americans like to believe that world leaders tend to flock to Washington because of the power of the U.S. government.

In fact, however, for many of these leaders, the White House and Congress are not even the most important stops in Washington. That distinction belongs to the World Bank and its companion institution, the International Monetary Fund.

There are, to be sure, still plenty of poor people in China and India, the two most populous countries in the world. Americans should not fall into the common mistake of judging these countries solely by the dynamism and sophistication of their leading cities, or the polish of their scientists and diplomats, or the brilliance and talent of the students they send to the United States.

Out in rural areas are tens of millions of Chinese, and perhaps hundreds of millions of Indians, still living on less than $1 a day.

Yet the curious international politics of poverty also creates a strange dynamic, giving a country like China strong economic incentives to exaggerate the degree to which it is poor.

China's per capita income was $530 in 1994, well above the world average of $382 for countries receiving the IDA loans. For African countries as a whole, the income figure was $307.

When a new study showed three years ago that, by different economic measurements based on purchasing power, China was much richer than previously thought, China didn't rejoice at the news. On the contrary, it debunked the report. After all, any international perception that China is no longer so poor could jeopardize its access to the World Bank's IDA loans.

Moreover, in its efforts to join the new World Trade Organization, China is arguing that because it is still a backward, developing country, it should be given more lenient treatment and greater time before it has to open its markets. That gives China still another incentive to cling to its image as an impoverished land.

Despite China's claims, the real issue is not whether there are still poor people in China, but whether it is, as a whole, one of the poorest countries in the world. It isn't. The IDA loans were supposed to go to nations that can't obtain money anywhere else. China certainly can.

Congress has been pressing the World Bank to end these loans to China. In Washington, the dynamics of this World Bank issue extend far beyond the usual ones of critics and defenders of China's human rights practices. Some members of Congress who have strongly supported the continuation of China's trading privileges in this country are questioning why it should qualify for the poverty loans.

"If China, India and Pakistan are classified among the poorest countries in the world . . . then how do they have the cash for nuclear weapons programs?" moderate Republican Sen. Richard G. Lugar of Indiana asked last fall.

Why does the World Bank keep giving China these poverty loans? For several reasons, it appears.

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