The Development Banks

1
The Development Banks

• Created from the Bretton Woods system, the World
  Bank is an institution where rich industrialized
  nations gather money in markets to distribute
  funds as loans to emerging members.

• The eventual goal the Alleviation of Poverty
  Worldwide

2
Mulitlateral Banks

• World Bank Group, Asian Development Bank,
  Inter-American Development Bank, and African
  Development Bank
• World Bank thought that three banks could serve
  their constituencies better than a distant
  institution dominated by industrial countries.
• Served as a dominant source of international
  resources to emerging economies up until the
  1980s.

3
Problems with Development Banks

• Cold War ended, strategic gesture became outmoded
• New generation of public and private leadership
  arose in developing nations.
• Dev. Banks differ in financial size Africa is
  the smallest with 5-10 of the total amount.
• Relative importance of banks has been declining.
• In past 7 years, WB has lent 18 billion to
  LDCs, as compared to the private sectors 1,450
  billion.
• WB must accept fact that they are no longer a
  significant source of funds to emerging economies.

4
Problems continued

• Developing banks claim they lend to countries
  with denied access to market financing and
  private investorsbut, all of the banks lend
  mainly to most credit-worthy countries basically
  those that have private investors there already.
• International Bank for Reconstruction and
  Development (IBRD) lending to LDCs has fallen
  from 40 to 1 in six years.
• 70 of the WB money is loaned out to a dozen
  economies, while the remaining 30 is divided up
  by 145 developing countries.

5
Problems continued

• Crisis lending is IMF responsibility, not the
  WBs.
• Regional banks repeat the WB organizational
  structure. Recently, WB expanded its offices in
  some of the Regional bank areas only creating
  conflict, competition, and confusion.
• Their patterns of lending in past 3 years are
  very similar to the same countries and for the
  same purposes.
• WB doesnt need to pump in more money, the local
  banks and private investors can recover by
  themselves.

6
Recommendations

• Development Banks should be renamed as
  Development Agencies it would define their role
  as the alleviators of poverty world wide.
• Resource transfers to countries with a per capita
  income of lt4000 will be eliminated within five
  years Starting at 2500, funding will be
  limited.
• Funds expended based on user fees. User fees
  consist of working projects such as vaccinated
  children, kilowatts of electricity delivered,
  cubic meters of water treated, passing literacy
  tests, miles of functioning roadsetc.

7
Recommendations continued

• If the countries show improvement in specific
  areas, the money will be granted. No results, no
  funds.
• The supplier of the service receives the money,
  not the government.
• An obligation to meet the user fees imposes the
  discipline on the country receiving assistance.
  This replaces the deferred 20-50 yr payment
  schedule.
• If grants are given instead of loans, receiver
  countries would not have to pay back the
  principle and interest.

8
Recommendations continued

• The grants may consume large quantities of money
  of the Development Agencies and they would have
  to ask member countries for more money. But this
  has a positive aspect. It forces the Dev.
  Agencies to have better performance and
  credibility to ask for more funding.
• Services would be performed by outside
  private-sector providers (NGOs and charitable
  org.) or public-sector entities, and awarded on
  competitive bid.
• Loans would be conditional upon a precise set of
  reforms, and disbursement would begin after
  institutional reforms are enacted.

9
Recommendations continued

• Regional programs should be the primary
  responsibility of their Regional Agencies Asian,
  Inter-American, and African Agencies. No overlap
  from the World Bank and its regional partners.
• WB is principal source of aid for ADB until it
  can manage on its own. WB should be the
  responsible for the Mid-East and few remaining
  European countries.
• Should concentrate on production of world goods
  such as treatment for AIDS, safeguard natural
  resources, inter-country infrastructure
  systemsetc.

10
Recommendations continued

• World Development Agency should reduce its role
  in the private-sector, only giving technical
  assistance and setting practice standards.
  Investment, guarantees, and lending to private
  sector should be eliminated.
• Multilateral Investment Guarantee Agency (MIGA)
  should be eliminated. Many countries already
  have their own political insurance agencies.
• WB and Regional Banks should write-off entirely
  their claims against all heavily indebted poor
  countries
• The United States should spend more to alleviate
  poverty.