Prof. Robert Wihtol of Asian Institute of Management writes this very useful and timely paper on state of Multilateral Development Finance Institutions. The title of the paper is Whither Multilateral Development Finance? which resonates with Whither Multilateral Trade. All things multilateral seems to be on their way down
Wihtol gives a good overview of the several MDFIs we have and then looks at the latest one BRICS Bank:
Multilateral development finance is at a critical juncture. In the past 70 years, it has developed through four distinct stages. The Bretton Woods conference established the World Bank and the International Monetary Fund in 1944 to finance post-war reconstruction and stabilize the global economy. The second stage saw the establishment of regional development banks in the 1950s and 1960s. This was followed by the emergence of subregional banks.
In the fourth stage, from the mid-1970s to the 2000s, specialized vertical funds were established to address global issues, and private development finance expanded. The multilateral financial architecture now has a multitude of development banks and funds. As the architecture enters the next stage, the development agenda is changing rapidly. Financially constrained traditional donors are unwilling to recapitalize the existing banks, while emerging donors want to reduce the role of traditional donors and increase their own funding. Emerging-economy bilateral programs are expanding. At the same time, new multilateral initiatives are advancing fast.
The BRICS countries’ New Development Bank and related contingent reserve and the PRC’s Asian Infrastructure Investment Bank initiative have added to the pressure for reform, and to the risk of fragmentation. An alternative financial architecture may take shape led by emerging economies, playing down coordination and well-established development, safeguard, and governance criteria. However, there is also an opportunity for genuine reform to ensure a new and innovative multilateral architecture.
Nice stuff and bit of history of all these MDFIs. I liked this one on ADB:
The Asian Development Bank (ADB) was established in 1966 and benefitted from the experience gained in establishing the other regional banks (Watanabe 1977: 1–14). ADB had the strong support of two key donors, the US and Japan. In the negotiations on establishing ADB, it was agreed that the president would come from Japan and the headquarters would be located in the Philippines, a strategic ally and former colony of the US. Given ADB’s modest resource base compared with the World Bank, it was initially agreed that India, whose vast financial needs would have overwhelmed ADB, would continue to borrow only from the World Bank. India and the PRC, which joined ADB only in 1986, started to borrow only in the late 1980s.
Interesting to note this trivia..
I think there are just toomany of these institutions and there is a need for a merger of sorts. China is building another infra bank alongwith the BRIC Bank whose focus is also going to be on infra just like BRIC Bank. How many do we need?
These multiple multilateral instis have created their own kind of elite bureaucracy and it is really ironical when they ask developing countries to reform their bureaucracy. We get a lot of commentary from these institutions over this and that reform in their member econs. High time they introspect on their side of the reform story too. ..