By Susan Engel and Adrian Bazbauers
Most people interested in development know about the World Bank and probably some of the bigger regional development banks, like the Asian Development Bank. But few people realise there is a system of 30 functioning multilateral development banks (MDBs). Indeed, we did not initially realise there were quite so many because there was no comprehensive tally or an academic study analysing them all. We set out to explore whether the MDBs work as a system and what role they play in promoting both debt and development so here is a short summary of some of our key finding on these three issues.
The MDBs as a System
The idea for the MDBs evolved out of the increasing complexity of the international finance system and the emergence of international monetary and financial cooperation well over a century ago. Key factors were inter-American financial cooperation from the 1880s onwards, international financial cooperation in the years between the two World Wars, and financial chaos during the 1930s. While most accounts of the World Bank attribute the idea of MDBs to proposals from American, Harry Dexter White, and Briton, John Maynard Keynes, we argue that the direct predecessors were, first, the establishment of export-import banks or export credit agencies beginning with America in 1934 and, second, a Mexican addition to a long-discussed proposal for an inter-American financial institution in 1939. Eduardo Villaseñor, then Mexico’s Undersecretary of the Ministry of Finance and Public Credit, proposed that the inter-American financial institution also be used to invest funds for economic development in the Americas.
Still, the first MDB only came to fruition with the 1944 Bretton Woods negotiations and the agreement to create an International Bank for Reconstruction and Development, which became known as the World Bank. And, remarkably, the 30 subsequent MDBs – of which only 29 are still functional – have followed the mandate, structures, and governance it laid out. Even the most recent additions to the MDB system – the BRICS-led New Development Bank (2014) and the China-led Asian Infrastructure Investment Bank (2015) – conform to the original blueprint. This supports the arguments that the BRICS and the new MDBs do not fundamentally challenge the neoliberal system of global governance and finance. See table 1 below for an overview of all MDBs.
The bulk of the MDBs were created during the post-Second World War Keynesian-modernisation-welfare era (circa 1946 to 1979) and followed the Keynesian formula of promoting balanced investment and economic development. But they expanded that agenda to include regional, sub-regional, and specialised development programs as with the Arab Bank for Economic Development in Africa (1974) and the OPEC Fund for International Development (1976). We use this framework of regional, sub-regional, and specialised banks to broadly categorise the MDBs.
Following the rise of neoliberalism during the 1980s, the first neoliberal MDB emerged in 1991: the European Bank for Reconstruction and Development. While the other nine MDBs that emerged since the 1980s were not overtly neoliberal in their design, we know that the World Bank and other leading banks became partners in the neoliberal paradigm. Less is known about the smaller MDBs, but many had to admit new shareholders to accommodate the changing exigencies of the neoliberal global financial system. Overall, we think that the MDBs can be usefully understood as a system, though there are some differences and quirks between them.
The MDBs and Debt
The MDBs came out of expanding international financial cooperation that followed a series of crises in the nineteenth and twentieth centuries culminating in the 1929 Great Depression. They were designed to ensure that states received sufficient investment flows to promote employment and development. Still, in setting up the World Bank as a bank, White and Keynes created an organisation that was beholden to private capital and hence could not overcome ‘the somewhat violent and not too enlightened motives of capital,’ as White once said. Further, the MDBs operate in a global system that lacks an orderly default mechanism for nation-states and they provide loans directly – and facilitate private lending for – what the Committee for the Abolition of Illegitimate Debts calls illegitimate, odious, and unsustainable debts. That is to say, the MDBs lend to regimes simply because they control a territory; they loan regardless of a regime’s legitimacy, respect for human rights, or whether the loan benefits the local population.
The MDBs facilitated financialisation in the 1970s thanks to their promotion of lending to the Global South and, once the 1982 Debt Crisis hit, the World Bank became a major debt collector for the Global North. Notably, financialised capitalism has not proved particularly efficient, and it is prone to crisis, with major debt crises in 1997 and 2008. As a World Bank paper recently detailed, 2010 to 2020 saw the ‘largest, fastest and most broad-based increase’ in emerging market and developing economy debt of the past fifty years (Kose et al. 2020, 111). This has occurred along with low interest rates and the growth of new financial ‘innovations’, which were present in the previous three debt crises. As the saying goes, we have seen this film before, and we know how it ends – with another debt crisis.
The development banks are entwined with debt networks and they play a pivotal role in this system as direct lenders, signallers, facilitators, creators of ‘common sense’ policy frameworks, financial innovators, de-riskers, and more. Contemporary development discourse from the World Bank and major donors has been about getting ‘Beyond Aid’ and increasing the level of debt for development. Many Majority World countries are again in dangerous territory when it comes to debt levels.
The MDBs and Development Discourse
While most of the MDBs reached their majority during the Keynesian-modernisation-welfare era, their banking DNA meant that they tended to focus on modernisation, or, more specifically, on bankable projects that demonstrated returns to the market. This drive did not disappear even with greater lending for basic needs during the 1970s or with the emergence of the Washington Consensus in the 1980s. When the human cost of neoliberalism became too high, the post-Washington Consensus arrived circa 1998 to renew the palatability of market austerity.
There was a brief and somewhat progressive interlude to the neoliberal agenda during the 2000s and early-2010s with the Millennium and Sustainable Development Goals targeting poverty alleviation and human development. But the penny-pinching returned with the Beyond Aid agenda. Murray and Overton (2016) coined the term retroliberal to describe current directions; an old-school focus on infrastructure as facilitating economic growth, increased emphasis on state sovereignty, and the concurrent dismantling of human rights-based approaches to development.
The two new MDBs led by the BRICS and China not only replicated the MDB model, but they also opted for a donor-recipient blueprint, which is less development-friendly than the member-owned, financial cooperation agenda envisaged by some of the World Bank’s founders. Still, member-led MDBs remain and there are examples of innovative, growing banks in the Global South, most notably the Development Bank of Latin America (CAF). Whether these innovators can reframe development discourse and practice towards a more progressive agenda remains to be seen.
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Susan Engel is an Associate Professor at the University of Wollongong, Australia. She tweets at @susanengel_oz.
Adrian Bazbauers is a Lecturer in the School of Business, UNSW Canberra, Australia. He tweets at @AdrianBazbauers.
Photo: World Bank / Grant Ellis
Table 1: Overview of Multilateral Development Banks
|1956||Council of Europe Development Bank||Europe||Specialised|
|1958||European Investment Bank||Europe +||Regional|
|1959||Inter-American Development Bank||Latin America and the Caribbean||Regional|
|1960||Central American Bank for Economic Integration||Central America||Sub-Regional|
|1963||International Bank for Economic Cooperation||Soviet States||Sub-Regional|
|1964||African Development Bank||Africa||Regional|
|1966||Asian Development Bank||Asia and the Pacific||Regional|
|1967||East African Development Bank||East Africa||Sub-Regional|
|1968||Arab Fund for Economic and Social Development||Arabic States||Specialised|
|1970||Caribbean Development Bank||Caribbean||Sub-Regional|
|1970||Development Bank of Latin America||Latin America||Sub-Regional|
|1970||International Investment Bank||Soviet States||Sub-Regional|
|1973||West African Development Bank||West Africa||Sub-Regional|
|1974||Arab Bank for Economic Development in Africa||Africa||Specialised|
|1974||Islamic Development Bank||Islamic States||Specialised|
|1974||FONPLATA Development Bank||River Plate Basin||Sub-Regional|
|1975||ECOWAS Bank for Investment and Development||West Africa||Sub-Regional|
|1975||Development Bank of Central African States||Central Africa||Sub-Regional|
|1975||Nordic Investment Bank||Nordic and Baltic States +||Specialised|
|1976||OPEC Fund for International Development||Global||Specialised|
|1977||International Fund for Agricultural Development||Global||Specialised|
|1985||Eastern and Southern African Trade and Development Bank||Eastern and Southern Africa||Sub-Regional|
|1989||Pacific Islands Development Bank||Pacific Islands||Sub-Regional|
|1991||European Bank for Reconstruction and Development||Europe +||Regional|
|1997||Black Sea Trade and Development Bank||Black Sea Region||Sub-Regional|
|2005||ECO Trade and Development Bank||ECO Member States||Sub-Regional|
|2006||Eurasian Development Bank||Eurasia||Sub-Regional|
|2014||New Development Bank||BRICS||Specialised|
|2015||Asian Infrastructure Investment Bank||Asia and Oceania||Specialised|
5 thoughts on “Multilateral Development Banks: A system of Debt or Development?”
I’m not sure this is a tenable point: [the AIIB] “opted for a donor-recipient blueprint, which is less development-friendly than the member-owned, financial cooperation agenda…”. The AIIB is primarily an investment lender, for projects, at near-market rates, to members of the bank. If you have a look at the ESG policies they are very much jointly devised, owned and delivered. Whether this makes them any more or less development-friendly than any other approach is something that some impact evaluation might shed light on, but I don’t think “donor-recipient” is going to feature in the assessments of the mode of assistance.
Thanks for the comment Matt. Getting away from donor-recipient relationships towards a partnership approach is a key part of mainstream donor agendas like the OECD’s Aid Effectiveness Agenda, so this would feature in their assessments of the Bank’s modus operandi. But the broader point is that both the new MBDs opted for a banking model (as you highlight) not a financial cooperative one, which is what both Keynes and White envisage but failed to created
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