The New York Times

Wednesday, June 23, 1999

World Bank and Treasury Nominee at Odds Over Loan to China

By DAVID E. SANGER

WASHINGTON -- In a rare public conflict between Washington and the World Bank, Treasury Secretary-designate Lawrence Summers said Tuesday that the United States would vote against a controversial loan to China that would resettle poor Chinese farmers to land that Tibetans claim as their own.

Despite the Clinton administration's objections, World Bank officials said that they expected that the loan would probably be approved at a meeting of the bank's board on Thursday. Originally, the vote was scheduled to take place Tuesday, but it was delayed so that James Wolfensohn, the bank's president, could preside over what has become a highly politicized debate over the institution's role in China.

If the United States opposes the loan, as Summers indicated it would during his confirmation hearing Tuesday, it would probably further strain relations with Beijing. Chinese officials have said that the American efforts to block the loan constitute an interference in China's internal affairs.

It will also mark a open disagreement with Wolfensohn, a strong-minded former investment banker who was the administration's choice to run the bank -- a job Summers once sought. He has resisted pressure to change the terms of the loan, arguing that it aids some of the poorest people in China, exactly what the bank's poverty-alleviation programs are intended to do.

World Bank officials say that the effects of the voluntary resettlement of 58,000 farmers on the ethnic makeup of the region have been vastly exaggerated by pro-Tibet groups. Their complaints have carried the day in Congress, however, where Tibet's resistance to Beijing's mandates are a popular cause.

"The United States will be voting to oppose the project because of concerns in the environmental areas and concerns in the resettlement areas," Summers said Tuesday. The Treasury Department represents the United States on the bank's board, where Washington holds 18 percent of the votes -- not enough to block a loan unless it wins over many allies.

"I think this may pass over the American objections," one senior member of the bank's board said Tuesday.

Under the plan, the bank would lend China $40 million to move the farmers from an overcrowded and badly eroded area in the northeastern corner of Qinghai Province to a sparsely populated, somewhat less poor region in the province 300 miles west.

Qinghai lies just north of the Tibet Autonomous Region on the Tibetan Plateau and was settled by Tibetan and Mongolian people. Today, however, most of its 5 million residents are ethnic Chinese.

The Tibetan groups that have campaigned against the World Bank project say that it will help Beijing dilute Tibetan culture. American officials clearly have their doubts about that argument, but they were unwilling to defend the loan and appear to be siding with Beijing. Forty percent of the proposed settlers would be ethnic Chinese, while the rest would be Hui Muslims and others, including some ethnic Tibetans. The bank says it believes the effects on Tibetan culture would be negligible.

While the United States often abstains from voting for World Bank projects, especially those involving China, it is rare for Wolfensohn to be caught in such open disagreement over China policy with the administration. It could be a costly fight: Support for both the bank and its sister institution, the International Monetary Fund, is scarce in Congress.

The American opposition to the loan may also inflame opinions in China, where anti-American demonstrations following NATO's bombing of the Chinese Embassy in Belgrade, Yugoslavia, last month led to claims that the United States is trying to undercut the Beijing government. China already regards the whole debate as an effort to back followers of the Dalai Lama, Tibet's spiritual leader.

But a senior American official said Tuesday that "World Bank projects by definition affect the internal developments of a state." The official said that some of the American objections arise from the fact that a number of standard procedures, including an evaluation of the environmental impact of the resettlement project, were not followed in this case.