 Mnuchin defends US call to slash support for development banks Washington, United States (AFP) April 11, 2018 - US Treasury Secretary Steven Mnuchin on Wednesday defended budget proposals that would sharply cut or eliminate American support for multilateral aid agencies and programs. The remarks in congressional testimony come a week before the World Bank and International Monetary Fund hold their Spring Meetings in Washington. The Treasury Department in October rejected a World Bank request for a capital increase, calling instead for greater efficiency. The department's budget request for the 2019 fiscal year, which begins in October, calls for cutting US contributions to a World Bank arm and other programs and organizations by nearly $400 million from 2017 levels. The proposal, which has no bearing on budget ultimately approved by Congress, is nevertheless a strong signal of the current administration's political priorities. "Our budget envisions United States contribution levels that are more appropriate relative to those of our partner countries," Mnuchin told a subcommittee of the House Committee on Appropriations. "We seek to balance priorities and direct government resources to programs that support the national interest and national security," he added. "Treasury also encourages international financial institutions to operate more efficiently and has been a driver of shareholder support for reforms." The budget proposal would reduce US support for the World Bank's International Development Association, its fund for the world's poorest, by eight percent to just over $1 billion. It would also impose a 20 percent cut on the African Development Fund, while cutting in half US contributions to the Global Environment Facility, or GEF, and the Asian Development Fund. The budget would also completely eliminate all support for two major agricultural and food security programs. Republican and Democrat lawmakers on the panel expressed concern over the apparent US retreat from the global arena, warning that reduced support for development could foment regional instability and create strategic opportunities for China. But Mnuchin told the panel many of the funding objectives had either already been met or were addressed elsewhere in the federal budget. "There are a lot of facilities that focus on environmental issues. This is just one of them," Mnuchin said of the GEF, a grant-making fund established ahead of the 1992 Rio Summit. "The reason why we're comfortable cutting this facility or asking for a cut in half is because this facility has defined obligations. A significant amount of them have already been impacted."
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IMF chief Christine Lagarde warned China on Thursday about saddling other countries with a "problematic increase in debt" through its ambitious global trade infrastructure project.
Lagarde made the comments at a Beijing forum on Chinese President Xi Jinping's signature Belt and Road initiative, a $1 trillion road, rail and construction project spanning dozens of countries -- from Asia to Africa and Europe.
But many of the colossal projects are being built by state-owned Chinese companies and financed by loans from China, leaving states billions of dollars in debt to Beijing.
"These ventures can also lead to a problematic increase in debt, potentially limiting other spending as debt service rises, and creating balance of payment challenges," Lagarde told the crowd of Chinese and foreign officials.
"In countries where public debt is already high, careful management of financing terms is critical," she said.
Some countries like Sri Lanka have already ended up deeply in debt and been left with little choice but to turn over crucial assets to Beijing as way to restructure the loans.
In Sri Lanka's case, the island nation handed over a long term lease on the strategically located and bustling Hambantota Port to pay down debt.
Lagarde advocated greater transparency and cooperation to get all stakeholders on the same page to avoid such problems.
"It's not a free lunch, it's something where everybody chips in, it's not just honey for bees," she said, warning that the large scale spending projects also come with corruption temptations for officials.
"Projects can always present the risk of potentially failed projects and the misuse of funds. In some corners, it's even called corruption," Lagarde told the officials, many of whom preside over Belt and Road projects.
The speech may ruffle feathers in Beijing where leaders have heaped praise on the project and been loathe to acknowledge any risks or pitfalls in the initiative, which is often described as a revival of the ancient Silk Road trade routes.
Speaking before Lagarde, China's central bank chief Yi Gang said Chinese banks had "achieved great successes" providing low cost financing to Belt and Road countries.
Yi said the banks do not rely on government subsidies but at the same time are "not purely commercial lending".
Xi struck back at criticism of his key initiative on Wednesday at the Boao Forum for Asia, a Davos-like meeting of international leaders held on the southern island of Hainan.
The Belt and Road "is neither the Marshall Plan after World War II nor an intrigue of China. It is, if anything, a plan in the sunshine," Xi said, according to the Xinhua state news agency.
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