James Dalgleish & Anna Willard
Guarantees Not Offered By World Bank
Wed Oct 22 13:00:49 2003
12.37.44.72

22 Oct 2003
World Bank can't guarantee donor pick in Iraq fund
By Anna Willard

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WASHINGTON (Reuters) - The World Bank will not be able to guarantee to donors that all the money they put into a new trust fund for Iraq will be used for sectors they request, according to a bank document approved by the board on Tuesday.

Donors from more than 70 countries will meet in Madrid this week as the United States presses for contributions to rebuild Iraq. Some countries are reluctant to put money into the fund, which will be run by the bank, unless they can say which sectors it will be used for.

At a meeting on Tuesday, the bank's shareholders backed the fund conditions and also agreed to offer Iraq between $3 billion and $5 billion in loans over the next five years.

"A donor may state a preference that its contribution be used to support a given sector," said the report, a copy of which was obtained by Reuters.

But the bank cannot guarantee all the money will be used for the stated preference and in that case administrators will talk to donors about using it for other sectors, it added.

Donors will still be able to do projects bilaterally in Iraq without going through the trust fund.

The bank will charge a fee of 0.2 to 2 percent for administrating the fund, the report said.

Use of the funds will be closely monitored particularly until the Iraqi national authorities have built up a track record of "effectively functioning financial management and accountability mechanisms" or until those functions have been contracted out to "reputable" private firms.

There will be two trust funds for Iraq, with the second run by the United Nations. Both funds will run until the end of 2007 or until the money in the accounts has been used up.

The UN and the World Bank estimate it will take $36 billion to rebuild Iraq but have not said how much is needed to be raised in Madrid.

"Given the unique circumstances of Iraq, it is critical to mobilize the donor community ... to help clear the way for the rapid reconstruction for Iraq," the bank's President James Wolfensohn said in a statement on Thursday.

The UN and World Bank estimate was designed to complement a separate report by the U.S.-led Coalition Provisional Authority which found a further $20 billion would be needed to put Iraq's economy back on a sound footing.

LENDING MORE FLEXIBLE

On Tuesday, the board decided to make potential lending more flexible by expanding the range of money to be offered.

Last week, Wolfensohn proposed the bank would lend $3.4 billion to $4 billion from 2004 until 2008. But the board asked him on Tuesday for more leeway.

The board agreed that Iraq should be allowed to access the bank's cheapest lending facility, the International Development Association, designed for the world's poorest countries.

There had been some question as to whether Iraq would be too wealthy to borrow from this fund because income from oil revenues would put the economy above the threshold.

According to a World Bank document obtained by Reuters, Iraq will be eligible for $250 million from IDA in each of the 2004 and 2005 fiscal years. But borrowing from the fund would be limited to those two years.

"Iraq has been, and should in fairly short order again be, a middle income country with very substantial natural and human resources and fundamentally good economic prospects," the document said.

The bank estimated that lending $500 million to Iraq would only use up 3 percent of remaining IDA resources so it would not deprive other poor countries of money.

((Reporting by Anna Willard and Lesley Wroughton; editing by James Dalgleish))

• World bank charges a fee for this service — C-shank, Wed Oct 22 18:28