Preferences, Variance, and Politics of Multiple Lenders: The Case of Brazil

1
Preferences, Variance, and Politics of Multiple
Lenders The Case of Brazil

• Ruth Ben-Artzi
• Department of Political Science
• Providence College
• Prepared for IPES, College Station, TX
• 11/14/09

2
RESEARCH QUESTION

• IS THERE UTILITY IN HAVING MULTIPLE PUBLIC
  DEVELOPMENT BANKS SERVE THE SAME COUNTRY?
• CONSIDERATIONS
• DO BANKS MAKE LOANS TO THE SAME SECTORS IN A
  GIVEN COUNTRY
• DO BANKS OF A DIFFERENT GLOBAL-STATE LEVEL HAVE
  DIFFERENT DECISION-MAKING CALCULUS

3
THREE INSTITUTIONAL LEVELS

• The world bank (WB)
• Inter-American development bank (IDB)
• Brazilian development bank (BNDES)
• All make project/program loans to Brazil

4
WHY IS THIS IMPORTANT?

• Countries spend billions of on aid
• Is the (political) involvement of shareholders
  influential in different ways for the three
  institutional levels?
• No study of how different multilateral financial
  institutions (that aid the same country) compare
  to each other
• Who benefits from the existence of multiple
  development banks?

5
LITERATURE

• IFIs are a platform for advancing political
  interests of principal member states (Vreeland,
  Stiglitz, Easterly, Thacker)
• Governance of IFIs the extent of delegation by
  member states (Tierney et al, Martin, Gould)
• Why states have an interest in membership in IFIs
  (Rodrik, Milner)

6
ARGUMENT
institution
country
A B C
X
How are decisions made? Where is the money going?
7
ARGUMENT
institution
country
World Bank (US, Wash. Cons.) A IDB (US, but LA
influence) B BNDES (domestic interest
grps) C
X (Brazil)
How are decisions made? Where is the money going?
8
METHODOLOGY
institution
country
WB IDB BNDES
BRAZIL
power structure/instit design
strategy

• shareholders
• politicking
• delegation

• amount
• sector
• region

9
BASIC FACTS
10
(No Transcript)
11
LOANS TO BRAZIL
12
2005-7 SECTOR DISTRIBUTION
13
INTERVIEWS

• Multilateral development banks should not be
  lending to Brazil
• Brazil is a safe borrower
• Banks need to show success

14
FINDINGS

• Global, regional and domestic development banks
  all do the same work
• These institutions overlap and compete with one
  another
• Aid/development projects are the same despite
  different institutional configurations (power
  structure/institutional design)

15
CONCLUSIONS

• It is not clear that theres a need for multiple
  public lenders to middle-income emerging markets
• A domestic development bank appears more
  effective despite its politicization
• It seems the IFIs potential as a policy tool for
  principals sustains their continued loan-making
  to Brazil
• Brazil has influence

16
Preferences, Variance, and Politics of Multiple
Lenders The Case of Brazil

• Ruth Ben-Artzi
• Department of Political Science
• Providence College
• Prepared for IPES, College Station, TX
• 11/14/09

17
Variables and measurements (methodology 2)

• major shareholders/Brazils shares
• negotiations (how decisions are made)
• of loans to sector
• of loans to region
• President/political party in power
• major trading partners
• Regional-level socio-economic indicators (to test
  for alternative explanation need based)

18
WB (Mission and Functions)

• IBRD and IDA Global poverty reduction and the
  improvement of living standards.
• promote long term growth
• promote investment
• more urgent projects dealt with first
• not to compete with other sources of financing

19
IBRD

• 185 members
• Making loans since 1945 (Brazil member since
  1946)
• Shareholders Brazil 2.07 US 16.38
• Developed countries hold majority of votes

20
IDB (Mission and Functions)

• contribute to the acceleration of the process of
  economic and social development of the regional
  developing member countries, individually and
  collectively
• Use funds raised in financial markets, its own
  capital and other available resources to finance
  the development of its borrowing member
  countries Supplement private investment when
  private capital is not available on reasonable
  terms and conditions and Provide technical
  assistance for the preparation, financing and
  implementation of development projects, programs
  and strategies.

21
IDB

• Started making loans in 1961
• Lends more to Brazil than the WB
• Sometimes works with the BNDES
• Shareholders Majority to LA countries (50.016)
  US has veto (30.007 - more than any other
  country)
• Brazils vote share 10.752 (together with
  Argentina is largest regional voter next is
  Mexico with 6.912)

22
BNDES

• Federal development bank
• Issues loans at low cost
• Financed small projects/micro-lending
• Receives 1bn annually from the IDB

23
Brazil - politics

• 1960-4 democracy, weak
• 1964 military coup
• 1964-1985 military regime
• 1985 elections, democracy restored
• 1985-1990 Jose Sarney (PMDB)
• 1990-2 Fernando Collor de Mello (PRN)
• 1992-4 Itamar Franco (PMDB)
• 1994-2002 Fernando Henrique Cardoso (PSDB)
  (re-elected 1998)
• 2002-- Lula da Silva (PT) (re-elected 2006)

24
Brazil Loan Data Sector Variables

• 1-Agriculture/Rural Development
• 2-Urban Development
• 3-Infrastructure Sanitation, Transportation
• 4-Environment/Pollution
• 5-Private Sector Development
• 6-Public Sector/Governance (Reform/Modernization
  of the State)
• 7-Social Investment Development, Protection
• 8-Financial Sector/Economic Policy

• 9-Education
• 10-Health, Nutrition, and Population
• 11-Energy and Mining
• 12-Industry and Trade
• 13-Science and Technology
• 14-Multi-sector Credit and Pre-investment
• 15-Tourism
• 16-Microenterprises

25
(No Transcript)