International Financial Institutions

Abstract

This article analyses the connections between organizational structures and funding structures for three different kinds of organizational paradigms: (I) organizational groups (e.g. the World Bank Group) composed of organizations with proper legal personality under international law and legal capacity under national law, (II) organizations administering various resources and providing various financing modalities under one legal personality (e.g. the Asian Development Bank), and (III) organizations established by a treaty which were not designed to leverage resources through callable capital (e.g. the International Fund for Agricultural Development or the OPEC Fund). Specifically, this article explores to what extent organizational structures and institutional and legal frameworks constrain the ability of institutions to enhance their impact, realize synergies, mobilize resources, and have access to capital markets. With reference to the exponential increases of capital and borrowings of multilateral development banks (MDBs), it is argued that these have become too big to fail. This finding is discussed in light of proposals that MDBs should substantially further expand their borrowings and lending without increase of their paid-in capital ratios. As shown, the solution cannot be that MDBs and rating agencies should weaken their criteria or that MDBs participate in advanced financial engineering. Also, the G20 should not be involved in determining the capital adequacy of MDBs as they are intrinsically conflicted in dealing with this matter. Rather, MDBs and other international financial institutions (IFIs) should open themselves to the participation of non-state actors (like export credit agencies and reinsurance companies), and explore new sources of funding which are not linked to an institution’s capitalization (like securitization and the subordinated, hybrid debt recognized as equity, sponsoring schemes and match-making mechanisms). This would embrace innovation and offer new ways to enhance the overall impact of IFIs.