Development bank must reform for funding: Geithner

ISTANBUL - The Obama administration wants to ensure multilateral development banks have adequate resources, but any capital increase must be tied to reforms, U.S. Treasury Secretary Timothy Geithner said on Monday.

Geithner, in remarks prepared for delivery to a meeting of finance and development officials from around the globe, said an assessment of the capital needs of poverty-fighting development banks will be completed by the first of 2010.

We must be fully confident that additional capital for the MDBs' hard loan windows is needed and that any new resources will be managed well and used effectively, Geithner said.

While the United States appears to favor a capital injection for the World Bank, other large donor countries such as Italy, France and Britain are less keen. France has argued that the Bank should raise capital by increasing its lending rates to middle-income and emerging economies.

The financial crisis has hammered developing countries through a contraction in global trade, falling commodity prices and a sharp decline in worker remittances.

As government revenues declined and private capital became more scarce, developing countries have turned to development banks like the World Bank, African Development Bank and Inter-American Development Bank for funding.

World Bank President Robert Zoellick has already warned that the global lender could face serious financing constraints by the middle of next year if demand continues at the current pace.

Geithner said a capital increase should go hand-in-hand with more transparency and accountability, and that lenders need to ensure their programs are effective.

(Reporting by David Lawder and Lesley Wroughton; Editing by Tim Ahmann)