Major shareholders have pushed for higher reserves which reduce risk of their contingent liabilities and reduce paid-in capital increases in future replenishment. Another rationale, during the 1980s, for higher reserves was need for adequate provision for non-accruals. But the burden was shouldered by one group of borrowers - those who serviced their debts on time. Another use for net income favoured by non- borrowing shareholders has been transfers to IDA, which reduced the need for their budgetary allocations. Borrowers on the other hand are interested in reducing borrowing costs, and hence opposed increases in loan charges.
Higher charges have no effect on loan demands from the less credit- worthy borrowers.
And while altered loan charges have effects over time, increased front-end fees affect new borrowers. There has been no unity among borrowers on these issues. IBRD- only borrowers press for net income to be used to lower future loan charges rather than supplementing IDA to which they have no recourse. China and India, blend countries getting IDA and regular loans, have been fence-sitters so far, but their attitude may soon change as they are eased out of IDA, says Kapur. The rationale for creating the surplus account was the new uncertainty over risk scenarios and a compromise between strongly divergent views in the Board.