A potentially disastrous cut in the money available to the Inter national Development Asso-ciation (IDA) — a lifeline to many of the world's poorest countries — will be high on the agenda of the forthcoming annual meetings of the World Bank and International Monetary Fund (10-12 October).

"This is the greatest challenge to development assistance in years.” World Bank president James Wolfenshon has warned.

Caught between a powerful ideological swing towards the private sector and aid cutbacks by many industrialised countries. IDA could become a victim of the accelerating privatisation of foreign assistance.

The United States is leading the onslaught. A militantly Republican Congress has made a virtue of its opposition to aid generally and IDA specifically.

As the soft-loan arm of the World Bank, IDA makes interest-free loans repayable over 35 years. In the financial year to the end of June, it committed $5.7 billion for 108 projects, making it the biggest source of funds for very poor borrowers unable

to raise finance elsewhere.

Washington, the biggest contributor, has already reduced its promised second annual contribution to the current three-year programme by eight per cent.

To add to the squeeze. Germany and Canada followed suit, citing the principle of ■proportional burden ^sharing Only an unprecedented all-out public relations campaign by the Bank prevented the outcome from being worse.

The talk on Capitol Hill is of slashing the next US contribution by a third. If that happened, and others cut back proportionately, next year's IDA could be S4 billion instead of $6 billion

In such an event. Wolfen-sohn was quoted as saying in the London Financial Times. "You'd have to wonder what happens to IDA."

Even more serious, however, is the fate of the next three-year programme — the 1 1th replenishment, which runs for the period 1997-1999.

Some forecasts suggest that IDA 11 could be halved, leaving many millions of the world's poorest searching for other sources of support. Approaching 40 per cent of IDA goes to India and China, and the bulk of the rest goes to Africa.

Geoffrey Lamb, the Bank's representative In London.

admits : We're in a tight sport over the funding of IDA. It there's a knock-on effect through other donors, the World Bank's capacity to asslst will be severely constrained." Africa could be hit particularly hard, because few countries in the debt-crip-pled continent can afford to borrow at market rates and few are attractive to private investment.

And since the Bank's fundamental purpose is to compensate for market failure — to make investments which the private sector shuns — cutting IDA would undermine its whole mission.

It could also undermine its staffing levels. The Bank has been under pressure to slim down, and it would be hard for Wolfensohn to Justify retaining the same number of employees if a smaller IDA resulted In significantly less lending and fewer projects.

With so much at stake. Bank staff and officials in donor countries have been discreetly looking at alternatives to IDA in its present form.

An arrangement which reduces US influence is attractive to the Bank because IDA is the main vehicle through which Congress exerts power over it. But it could find that other donors are simply hiding behind Washington's action and are quietly relieved that the US

is taking the heat for cutting IDA. Britain and Canada are probably reducing their aid budgets, and the Scandinavian countries, long stalwart supporters of IDA, are tired of making up the difference when US contributions fall short.

If negotiations on IDA 11 are not wrapped up by the end of the year, the outcome may be a stopgap measure to keep the show on the road until next year's US presidential election provides a clearer idea of which way the political wind is blowing.

But in the long run. IDA seems to be past Its peak. Many industrialised countries are losing Interest in supporting traditional public sector aid. and as aid budgets shrink, development is being privatised. To the extent that borrowers are forced to improve their polices and make better use of their own public and private resources, that will not be fatal. To the extent. that the poorest are left without adequate support, it is a tragedy. — Gemini News

The writer is an economics writer based in London. He has worked for The Times and The Independent in London and for the World Bank.