The Soft Approach

From the new highway snaking through the jungles of western Hon duras to the huge irrigation and power project that is transforming Pakistan's Indus River Basin, many of the world's underdeveloped areas owe much to an organization that most Westerners have never heard of. The organization is the International Development Association, a branch of the World Bank founded in 1960 by 15 World Bank member nations to make "soft," easy-term loans--with no political strings attached--to poor nations. Last week IDA reached a milestone when the total it has loaned passed $1 billion.

Too Poor to Pay. IDA gives credit only to countries so poor that they can not afford to pay even the World Bank's modest 5.5% interest rate, let alone the higher rates of conventional lending institutions. It charges no interest, gets only three-fourths of 1% annual service fee to cover its administrative costs.

It grants its loans for 50 years and gives a ten-year grace period before repayment must begin. In return, it insists on approving all projects financed by its loans, and makes sure that the contracts for all projects are open to competitive international bidding.

Of the 27 nations that have received IDA loans, India has benefited most, receiving $485 million for industrial imports, railways and telecommunications. Pakistan is next with credits of $242.7 million, $58 million of it for the Indus Basin development. IDA has also lent to emerging African nations a total of $72 million for such projects as a 112-mile, all-weather highway across Swaziland and school construction in Tanganyika. Latin America has been granted nearly $100 million to build transportation and agricultural facilities and to improve municipal water supplies.

Too Busy to Sign. Compared with the $1.7 billion economic aid program of the U.S., and even the combined aid programs of other Western nations, IDA is still pretty small potatoes. But it is making loans that would not other wise be granted for projects that might not otherwise be built, and many of the projects promise to bring enormous returns to the countries involved. There is far less likelihood that the U.S. will ever get much in return--either in hard currency or lasting gratitude--for its contributions which account for 32% of all IDA funds. When Kenya was granted its $4.5 million credit in December, its ambassador had to delay signing the agreement in IDA's Washington head quarters for nearly three weeks. Reason: he was busy at the United Nations, trying to organize a condemnation of the U.S. for its role in the Congo rescue operation.

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