By Josh Zumbrun and Stephen Fidler 

WASHINGTON -- The Trump administration is backing a $13 billion increase in funding for the World Bank, putting aside its skepticism of the big government-backed institutions that manage the global economy, in part because it wants the World Bank as a counterweight to China's growing international influence.

The change, which will allow the bank to increase lending to poor-country clients, comes after what European and other officials described as difficult negotiations over tough terms demanded by the U.S. One official described the agreement as "touch and go," and many doubted it would happen.

U.S. Treasury Secretary Steven Mnuchin said Saturday that the increase in funding would allow the World Bank to shift resources to poorer borrowers and away from countries better able to finance their own development objectives.

"There are reforms that they're making that we think are quite significant along with the increased funding request," Mr. Mnuchin told a news conference.

The capital boost could help make it a stronger counterweight to Chinese-lending, including from the Beijing-led Asian Infrastructure Investment Bank, which is growing rapidly.

President Donald Trump has repeatedly signaled a suspicion of multilateral institutions and initiatives, including the World Trade Organization which attempts to settle disputes in global trade.

The U.S. Treasury had been sharply critical of the bank. The World Bank had wanted to move forward with the increase last year, but the U.S. blocked it, shifting the discussion into 2018. The U.S. is the only country with veto power over any changes in bank structure, so funding increases cannot proceed without Washington's support.

Treasury's Undersecretary for International Affairs David Malpass said in congressional testimony last November that the role of multilateral development banks, including the World Bank, needed "to change dramatically" and that he had "major problems" with countries continuing to borrow from the World Bank as incomes rose, singling out China.

The shift to U.S. support for more funding at the Bank took some European governments by surprise, said Suma Chakrabarti, president of the European Bank for Reconstruction and Development, a London-based multilateral bank lending in Europe, the Middle East and North Africa. He said in an interview Thursday that the capital increase is "very good news," since it would help efforts to reduce global poverty.

The U.S. support came with strings attached. Growth in World Bank salaries will be capped. Changes will shift lending practices for nations classified as upper-middle income, currently defined as nations with per capita incomes between about $4,000 and $12,000. Countries receiving loans from the World Bank "graduate" to less subsidized loans as their income levels rise, and under the new round of changes, those rates will rise more quickly, and such countries will graduate faster.

"We will lend more over time to the lower-middle income countries," World Bank President Jim Yong Kim said at a press briefing this week, specifying that "there's nothing in the agreement that targets any specific country."

Other nations in the upper-middle income group include Brazil, Argentina and Turkey. Though countries may borrow less as they become wealthier, their voting shares across the World Bank will also rise under the proposal, allowing officials there to present it as a sign of progress.

"It is useful to Argentina to access the loan portfolio of the World Bank but if the international community says Argentina has graduated it means something good has happened in Argentina," Nicolás Dujovne, the finance minister of Argentina, said on Wednesday. He added, "we would prefer to see the lending increased and to receive more funding from the World Bank."

Mr. Mnuchin said he would work with Congress to secure approval for the U.S. contribution, a step that has in the past proved challenging. After the Obama administration agreed to increase funding for the International Monetary Fund in 2010 it took five years to win congressional support.

"No member of Congress is going to campaign at home on supporting a World Bank capital increase," said Scott Morris, a senior fellow at the Center for Global Development, an international think tank. "They don't do it eagerly. It takes some convincing there."

The U.S. has made other shifts in its international approach, citing the need to counter China. The Trump administration's first budget proposed eliminating the Overseas Private Investment Corp., which provides financing and political risk insurance to companies investing in emerging markets. In this year's budget, the it pivoted, proposing increasing funding for OPIC as well as supporting a piece of legislation that would give OPIC broader investment powers.

"We lack the modern, 21st century mechanisms needed to either compete with countries like China, or cooperate with allies like the United Kingdom, Germany, and Japan, which are investing heavily in emerging markets," OPIC President Ray Washburne testified to Congress earlier this month.

In both cases, the administration had an initial impulse to disengage, but shifted course after realizing China would fill a void if the U.S. were to retreat.

The U.S. is the largest and most influential shareholder in the World Bank and the IMF, and was the chief architect of both institutions created in the aftermath of World War II.

"The U.S. administration comes to the multilateral institutions with a heavy degree of skepticism," U.K. Chancellor of the Exchequer Philip Hammond told reporters on Friday.

He said it was up to countries like the U.K. and others to persuade Washington that strengthening the multilateral institutions underpinned the international system and benefited the U.S.

"I think we are all delighted that the U.S. has shown that despite a tough rhetoric...when a sensible deal comes forward, the U.S. is prepared to step up and join in," Mr. Hammond said.

He credited Mr. Mnuchin as "an important force in shaping the administration's response" to the capital increase.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Stephen Fidler at stephen.fidler@wsj.com

(END) Dow Jones Newswires

April 21, 2018 17:12 ET (21:12 GMT)