World Bank shareholders supported capital increases that will provide $US5.1 billion ($5.5 billion) in cash and enhance China’s clout at the agency created after World War II to eradicate poverty.

The 186 member countries yesterday agreed to provide $US3.5 billion to the bank’s unit that lends to governments, the first general increase in 22 years. Another $US1.6 billion from developing nations will boost their voting powers, enabling China to leapfrog countries such as Germany and the UK to become the third-largest shareholder behind the US and Japan.

“This package is a first for the bank – never has it attempted to change voting power while also asking for a general capital increase to boost resources,” President Robert Zoellick told reporters in Washington yesterday. “The additional capital means we will be able to continue playing the role that is demanded of us.”

Zoellick, 56, traveled from Tokyo to Paris in the past six months to convince shareholders his institution needed capital after stepping up aid during the financial crisis. He warned that without a pledge of support, the bank would have to reduce loans this year for projects such as road building and education.

The risk of having to cut back lending no longer exists, he said yesterday.

“This capital increase is certainly an important achievement for Zoellick, and he has fought very hard,” Domenico Lombardi, a senior fellow at the Brookings Institution, and a former executive board member at the World Bank, said in an interview April 24.

Stronger accountability

Shareholders endorsed a proposed new strategy, which the bank said will strengthen efficiency and accountability. Creating “opportunities for growth in sectors such as agriculture and infrastructure” is part of the plan, it said in a statement.

A group of environmental and poverty-fighting organizations such as Africa Action and Friends of the Earth in a press release last week said they didn’t support the capital increase because of the bank’s “continued financing of dirty energy projects.”

Zoellick, in yesterday’s press conference, put forward environmentally friendly actions taken by the bank, such as climate-investment funds.

“We will move people towards low-carbon growth, but we will also help build support for the climate-change negotiations,” he said. “The poor need energy to grow, and many countries in Sub-Saharan Africa only have 7 to 10 percent of their public with electricity.”

Paid-in capital

The $US5.1 billion for the International Bank for Reconstruction and Development, which lends to governments, is the paid-in part of a total $US86.2 billion capital increase. The difference between the two is callable capital, or money countries would have to disburse if the institution were in danger of defaulting.

The bank’s private investment arm, the International Finance Corp., for which the bank initially saw a need for as much as $US2.4 billion, will get a cash injection of $US200 million as part of the shift in voting rights.

The increase in developing countries’ clout was agreed by Group of 20 leaders at a meeting in Pittsburgh last year. Their voting power will rise by 3.1 percent at the IBRD unit and 6.1 percent at the IFC, the bank said.

China’s voting rights at the IBRD will increase to 4.42 percent from 2.77 percent. Korea’s will rise to 1.57 percent from 0.99 percent. Among those with a falling share are France and the U.K, both going to 3.75 percent from 4.17 percent.

Poor nations

“It looks like we’ll have a more representative World Bank, with countries like China being given a bigger say, but poor countries are still effectively shut out,” Elizabeth Stuart, a spokeswoman for aid organization Oxfam International, said in a statement.

Of 47 countries in sub-Saharan Africa, only Sudan gained in voting rights, and more than a third lost some, according to Oxfam.

Payments for the capital increase still have to be approved by countries’ parliaments. Zoellick said he has found initial support among US lawmakers, while acknowledging the process won’t be easy.

“There’s going to be a battle in Congress over the general capital increase,” said Beatrice Edwards, the International program director at the Government Accountability Project, a Washington-based watchdog group, pointing to a report by the staff of US Senator Richard Lugar of Indiana, the top Republican at the Foreign Relations Committee.

“Any new capital increase should be approved only after the relevant institution has formally agreed to a reform agenda and begun to implement it,” said the report, which called for changes at international financial institutions.