Multilateral Lending Institutions Research Articles

Exporting Forest Loss? A Cross-National Analysis of the United States Export–Import Bank Financing in Low- and Middle-Income Nations

Dependency theory argues that due to unequal economic relationships, including exports, multinational corporations, and loans from multilateral lending institutions, high-income nations exploit the labor and resources of low- and middle-income nations. We extend this line of reasoning to the United States Export–Import Bank, as it has recently come under scrutiny for its lending in the forestry sector of low- and middle-income nations. Although this concern has been raised, we are not aware of any cross-national research that empirically evaluates if their investments adversely impact forests. Therefore, we examine the impact of the United States Export–Import Bank lending in the forestry sector on forest loss. Using a two-stage instrumental variable regression model to account for possible donor selection bias as well as ordinary least squares regression to analyze data for 78 low- and middle-income nations, we find that export credit agency financing is related to increased forest loss from 2001 to 2014. Our findings are consistent with dependency theory ideas that economic linkages with high-income nations increase forest loss in low- and middle-income nations.

China's Growing Influence in Latin America

AbstractThis article examines China's growing influence in Venezuela and other parts of Latin America as it seeks to secure a steady supply of cheap oil and new export markets. In recent years, China has offered loans to cash‐strapped nations in the region on better terms than those offered by the United States and other multilateral lending institutions. China's growing influence worries the United States and other global observers who fear the spread of anti‐democratic and anti‐capitalist views. China maintains that its only interest in the region is economic. The current political turmoil in Venezuela offers China the opportunity to assuage these fears by supporting the presidency of Juan Guiado.

Reducing Mineral and Vitamin Deficiencies through Biofortification: Progress Under HarvestPlus.

Fundamentally, the prevalence of mineral and vitamin deficiencies is high in developing countries due to the fact that agricultural systems do not produce sufficient foods rich in minerals and vitamins. Biofortification involves breeding staple food crops to increase their micronutrient content, targeting staple foods widely consumed by low-income families globally. In so doing, biofortification contributes to solving the underlying problem of mineral and vitamin deficiencies by increasing the amount of iron, zinc, and provitamin A produced by food systems. When HarvestPlus first started in 2003, there was much doubt among a range of stakeholders, that biofortification would work. First, we had to prove to the plant science community that higher target levels iron, zinc, and provitamin A could be bred into high-yielding, profitable varieties. Presently, over 150 varieties of 12 biofortified crops have passed the agronomic tests of varietal release committees in 30 developing countries. In 3-5 years, biofortified varieties will be available to farmers and consumers in an additional 25 countries. The nutrition community initially questioned the efficacy of biofortified crops - would the levels of retained nutrients and absorption be high enough? HarvestPlus has commissioned 15 efficacy trials, all undertaken in developing countries. While 5 of these studies are still in process, there is already sufficient positive published evidence for iron and provitamin A. Can adoption of biofortified crops by farmers be scaled up, and a public health impact demonstrated? HarvestPlus estimates that 20 million farmers and consumers presently grow and consume biofortified crops in 8 target countries. The final and major challenge is to mainstream biofortification into the fabric of "business-as-usual" of a range of organizations - public and private agricultural research, institutions that focus on bringing improved agricultural technologies to farmers including multi-lateral lending institutions, private companies, non-governmental organizations, and the policies and programs of national governments, regional organizations, and UN agencies.

An Effective Asian Infrastructure Investment Bank: A Bottom Up Approach

AbstractThis article suggests that the debate surrounding the inception of the Asian Infrastructure Investment Bank (AIIB) is missing a crucial element of staffing policy. We review existing literature on IMF and World Bank reform, which shows that developing and emerging economy leadership in the organizations may not be sufficient in changing the normative character and policy orientation of the new organization. To counter principle‐agent problems that make multilateral lending institutions unresponsive to policy directives from shareholders and management, we argue that staffing policies should be at the forefront of AIIB scrutiny. We show that, staffing practices should safeguard against three specific staff‐level issues: (1) half‐hearted or incomplete policy mandate reform; (2) intellectual monocropping; and (3) at organization culture incompatibility. To substantiate our conclusions and policy recommendations we examine the World Bank and IMF as case studies of staff‐level reforms in multilateral lending institutions.

Secession Risk and Fiscal Federalism

Why is fiscal federalism so often dysfunctional from an economic point of view? Particularly in the developing world, fiscally decentralized systems often lack hard budget constraints and an open, common market. This article argues that preventing secession can require fiscally deleterious institutions. Beyond the well-known device of “fiscal appeasement,” central governments facing potential secessionist challenges try to hamstring regional tax collection and permit regional protectionism against goods and labor. While ethnic diversity has helped to preserve relatively robust forms of fiscal federalism in Canada and Switzerland, it has had the contrary effect in developing countries. Even among Western democracies, those governments unwilling to countenance secession are less likely to respond to secessionist challenges by decentralizing taxation powers. The political logic of decentralization may stymie efforts to reform decentralized institutions along the lines recommended by economists and the multilateral lending institutions.

Liberalization of Investment and Human Development

Particularly throughout the 1990s, one important strategy relied on by countries lacking capital or seeking to improve their access to technology by attracting investors has been to conclude international investment agreements (IIAs). Such treaties usually include provisions relating to the scope and definition of foreign investment ; admission and establishment ; national treatment in the post-establishment phase (a guarantee of non-discrimination against the investor of the other Party established in one Party); the most-favoured nation clause (ensuring that the investor of the other Party will benefit from the same treatment as any other foreign investor) ; fair and equitable treatment, including a protection from expriopriation ; guarantees of free transfers of funds and repatriation of capitals and profits ; and dispute settlement provisions (State-State and State-investor). But how successful was such a strategy? Did it succeed in attracting investment? And even if it did, how can we assess the 'sovereignty costs', or the loss of 'policy space', associated with the conclusion of IIAs? If countries indeed compete for the arrival of foreign investment and if the conclusion of such agreements is one tool they rely on to gain an advantage on potential competitors, does this entail the risk that the concesssions they make will go too far, for example by renouncing the possibility of imposing performance requirements on the investor (though this could arguably strengthen the linkages with the host economy), by guaranteeing a freeze in the regulatory framework applicable to the investment, or by authorizing transfer pricing between the local subsidiary and the foreign-based parent, thereby reducing the fiscal revenues that could be gained from the arrival of the foreign investor? By concluding an investment agreement, a country signals its intention to respect the rights of investors and to create a legal and policy framework that will provide the kind of stability they usually expect. But could it be that, while it may be understandable for each country considered individually to seek to conclude IIAs with a view to attracting investors, the result is collectively sub-optimal, as the IIAs lose their signalling function once they come to be generalized?We conclude that IIAs are not decisive in attracting investment. FDI inflows are generally dependent on other variables, especially the size of the market in the host country or trade openness ; and although a predictable and safe legal environment does matter to the investor, such predictability can be provided by other means (the more a country's traditional respect for the rule of law is established, the less it shall have to resort to investment treaties that protect the rights of investors). Moreover, if IIAs make any difference, it is especially in the extractive industry where very large investments are made, that are 'sunk' at the early stages of the project, and that are only profitable after a long period of time, leading the investor to be particularly risk-averse. It would therefore be ill-advised for countries seeking to attract investment to do so by providing incentives in investment agreements, especially where such incentives are designed in a way that could be interpreted as exempting the investor from having to comply with requirements linked to human rights, or to social and environmental considerations. Such incentives are no substitute for the establishment of an attractive macro-economic and business climate, and they may in fact even be counter-productive as regards the immediate aim of attracting investors (let alone as regards the more ambitious aim of human development) if, as a result of entering the country, the investor would be risking its reputation and subject itself to criticism because of the laxity of the standards applied. It is therefore entirely justified, even from the point of view of the attractiveness of a country to investors, to seek to explore which safeguards should be established under the domestic law of host countries in order to ensure that the arrival of FDI shall not negatively affect the rights of the local population, and shall instead contribute positively to human development indicators in the country ; and it is fitting for capital-exporting countries and for agencies such as export credit agencies or multilateral lending institutions to support this effort. Far from limiting the sovereignty of the countries seeking to attract investment, these tools are used in order to strengthen the bargaining position of these countries: they are a way to support them in making the choices that should benefit their populations most, when these countries could otherwise be tempted to 'signal' their willingness to attract investors by providing far-reaching forms of protection that reduce their policy space, or to offer advantages that will annul, or at least seriously diminish, the benefits they have a right to expect from the arrival of FDI.

A responsible lender? The European Investment Bank’s environmental, social and human rights accountability

This article examines the principles of accountability applied by the European Investment Bank in comparison with the practices of other Multilateral Lending Institutions. After a brief description of the EIB and its activities, the substantive and procedural principles governing the EIB's external accountability are reviewed. The substantive accountability principles considered are the applicable rules of the EU legal order and the voluntary human rights, social and environmental principles and standards which the EIB has identified for itself and committed to follow throughout its operations. The article evaluates the extent to which these norms form a credible normative framework against which the EIB's lending practices can be appraised. From a procedural accountability point of view, the article assesses the transparency and participation policies of the EIB, as well as the mechanisms offered to external stakeholders to seek redress from the EIB in case they are wronged by one of its decisions. The redress mechanisms analysed are the recent EIB's Complaints Office, the European Ombudsman and the Court of Justice. We conclude that the EIB should take more advantage of its being subjected to the EU human rights, social and environmental rules and of the EU judicial apparatus in order to upgrade its substantive and procedural accountability towards external stakeholders.

A Responsible Lender? The European Investment Bank's Environmental, Social and Human Rights Accountability

This article examines the principles of accountability applied by the European Investment Bank in comparison with the practices of other Multilateral Lending Institutions. After a brief description of the EIB and its activities, the substantive and procedural principles governing the EIB’s external accountability are reviewed. The substantive accountability principles considered are the applicable rules of the EU legal order and the voluntary human rights, social and environmental principles and standards which the EIB has identified for itself and committed to follow throughout its operations. The article evaluates the extent to which these norms form a credible normative framework against which the EIB’s lending practices can be appraised. From a procedural accountability point of view, the article assesses the transparency and participation policies of the EIB, as well as the mechanisms offered to external stakeholders to seek redress from the EIB in case they are wronged by one of its decisions. The redress mechanisms analyzed are the recent EIB’s Complaints Office, the European Ombudsman and the Court of Justice. We conclude that the EIB should take more advantage of its being subjected to the EU human rights, social and environmental rules and of the EU judicial apparatus in order to upgrade its substantive and procedural accountability towards external stakeholders.

How the Creation of the Caribbean Single Market and Economy (CSME) will Strengthen Caribbean Economies

The current institutional arrangements which govern the Caribbean Single Market and Economy are fully realized based on attempts of preceding Caribbean economic integration. The first significant attempt was disastrous. With myopic dreams of unification, the West Indies Federation was formed in 1958 and consisted of 10 British West Indian territories, where Trinidad and Tobago, Jamaica, and Barbados were the principal members. Most of the Leeward and Windward islands, which were then under British control, were also apart of the federation. The seat of government was in Port of Spain, Trinidad who was then, slated for independence in 1962. Consequently, the federation saw little hopes of surviving its troubled infancy because it was an institution built on self interest, rather than symbiosis. Before Trinidad left, however, Jamaica, the most populous and prosperous member, voted (1961) to leave the federation, fearing that it would have to shoulder the burdens of the economically underdeveloped members. Trinidad and Tobago, inevitably, followed suit and the federation disintegrated in May, 1962. Further attempts date back 1968, with the establishment of the Caribbean Free Trade Area (CARIFTA) to serve the purpose of only removing the tariff and other barriers to intra regional trade in goods. This resulted in a reticent ten percent (10%) growth in intra- regional trade of the Caribbean economies. The integration process was later intensified through the Treaty if Chaguaramas which outlined directives to create a Common Market in the region. Added to the existing agenda of supporting liberalization on trade in goods, was the establishment of a common external tariff, intended to provide protection to regional industries. The 1973 treaty contained further provisions for the removal of restrictions in the establishment of businesses, provisions of services, the movement of capital and the coordination of economic policies. These stipulations barely made a difference to the volume of intra- regional trade which still lingered at 10% mark of total trade. It failed to catalyze new investments and though it intended to support regional import substitution, it miserably addressed evolving and pressing issues concerning international competitiveness and export penetration. In the following years the Caribbean economies, under the auspices of multilateral lending institutions, implemented structural adjustment programs that targeted of economic, financial and trade liberalization which surpassed their commitments as expressed by the treaty of Chaguaramas. By the end of the 1980’s, through precipitating trading blocs and the inception of economic globalization, there was ubiquitous face-lifting of economies. This accommodated the working of free and private market forces to construct robust capital and other factor flows, and to endorse an export oriented growth and international competitiveness. Henceforth, at Grand Anse Grenada, 1989, Heads of Government, being properly convinced of the necessity to reinforce and extend the Caribbean Community in all of its dimensions, decided to convert the limited Common Market as conceived in 1973, into a Single Market and Economy in as short a time as possible.

The Role of Lawyers in Producing the Rule of Law: Some Critical Reflections

INTRODUCTION For the last 15 years, American and European governments, lending institutions led by the World Bank, and NGOs like the American Bar Association have been funding projects to promote the “Rule of Law” in developing countries, former Communist and military dictatorships, and China. The Rule of Law is of course a very capacious concept, which means many different things to its different promoters. Anyone who sets out to investigate its content will soon find himself in a snowstorm of competing definitions. Its barebones content (“formal legality”) is that of a regime of rules, announced in advance, which are predictably and effectively applied to all they address, including the rulers who promulgate them — formal rules that tell people how the state will deploy coercive force and enable them to plan their affairs accordingly. The slightlymore-than barebones version adds: “applied equally to everyone.” This minimalist version of the Rule of Law, which we might call pure positivist legalism, is not, however, what the governments, multilateral lenders and NGOs have been promoting. All of the active projects have some specific substantive and institutional content. Multilateral lending institutions (development banks) have tended to favor the general position — loosely traceable to Max Weber and Douglass North in one version, and to Milton Friedman and Friedrich Hayek in another — that well-functioning markets require the support of a framework of clearly defined and effectively and predictably enforced legal rules and rights. At the height of the so-called Washington Consensus in the 1990s, neo-liberal promoters stressed in particular that the Rule of Law protects property rights, especially in foreign direct investment,

The Cost of Shame: International Organizations and Foreign Aid in the Punishing of Human Rights Violators

Are violators of international human rights norms punished with lower levels of foreign aid? Despite their abstract preferences, governments often lack the incentive to punish norm violators bilaterally. Multilateral lending institutions, such as the World Bank, could fill the void if they wanted to consider human rights abuses and could bypass restrictions on evaluating the political character of recipients. This article argues that `shaming' in the United Nations Commission on Human Rights, through resolutions that explicitly criticized governments for their human rights records, provided substantive information about rights abuses and gave political cover for the World Bank and other liberal multilateral aid institutions seeking to sanction human rights violators. Statistical analyses support these theoretical claims. The adoption of a UNCHR resolution condemning a country's human rights record produced a sizeable reduction in multilateral, and especially World Bank, aid but had no effect on the country's aggregate bilateral aid receipts. The analyses also support predictions that `objective' measures of human rights have no independent effect on multilateral aid allocations. The findings, which are robust to different model techniques and specifications, suggest that punishment for violating international human rights norms is selective, that international organizations play an important role in the selection process and, thus, that seemingly symbolic resolutions of a politically motivated IO can carry tangible consequences.

Multilateral Lending Institutions and Transnational Policy Networks in Mexico and Chile

Abstract The impact of economic globalization for the countries of Latin America was profoundly shaped by the impact of the debt crisis of the early 1980s. For these countries, the emergence of transnational policy networks involving multilateral and domestic technocrats was instrumental in ushering in market reforms. By 2007, a variety of factors would seem to place middle-income countries such as Mexico and Chile beyond the policy reach of multilateral lending institutions. I argue, however, that the InterAmerican Development Bank and the World Bank have, in fact, become closely entangled in the development of conditional cash transfer programs through closed transnational policy networks. The nature and extent of that involvement has been shaped by the different institutional legacies and cultures of the two institutions. While both multilaterals tended to bolster the objectives of domestic policymakers and the exclusion of civil society organizations from the policy process, the greater rhetorical com...

Bridging The Convergence-Divergence Policy Diffusion Divide, Mid-Range Theorizing, and Devolving Food Aid in Mexico and The Dominican Republic

Scholarship on policy diffusion in Latin America tends to emphasize pressure for policy convergence, often associated with globalization and multilateral lending institutions (MLIs), or pressure for policy divergence, often linked to domestic political institutions. These studies capture crucial forces at work shaping the region’s democratic and neoliberal economic transitions. However, attention to convergence or divergence pressure, rather than mid-range theory that frames how the two combine at different stages in the diffusion process, obscures findings from empirical case studies. This research tries to explain why Mexico successfully devolved food aid resources away from its national capital to rural areas, while the Dominican Republic tried and failed. If both countries were under similar convergence pressures, as suggested in the convergence literature, and were undergoing a similar domestic transition in their political structures, as suggested in the divergence literature, why the different outcomes? Convergence pressure put devolving food aid on the reform agenda in both countries, and, subsequently, domestic pressure, in particular changing national party systems, shaped the eventual organization, implementation and variation of devolution policies that followed. Thus, bridging the convergence-divergence divide becomes necessary to understand these case studies.

Multilateral adjustment lending to states in India: Hastening fiscal correction or softening the budget constraint?

The widening fiscal deficit of sub-national governments has made the task of macroeconomic stabilisation much more difficult and complex. In many countries, including India, multilateral lending institutions provide assistance for sub-national fiscal reforms through structural adjustment loans (henceforth SAL) with conditionalities heavily loaded with fiscal correction measures. This paper examines the fiscal impact of SAL in Indian states by analysing the quantitative and qualitative aspects of SAL-induced fiscal reforms. Econometric investigation of fiscal impact reveals that state specific effect of SAL in terms of fiscal consolidation has been mixed. There is evidence of softening of the budget constraints in some states, but there is also evidence of greater reduction in fiscal imbalances of SAL states than non-SAL states. It is also seen that much of the fiscal gains have occurred through improved revenue productivity of the tax system and not through expenditure restructuring. It is also seen that the poorer states have preferred to reduce their developmental expenditures to deal with fiscal stress and to comply with fiscal correction targets. This, in turn, has had adverse growth implications. The paper concludes that the benefits and the acceptability of SAL at the sub-national level in India would critically depend on factors such as the qualitative change in government expenditure in meeting deficient delivery of public services at state level, and the removal of state level social and infrastructural bottlenecks for promotion of growth by releasing government resources through expenditure restructuring and reform.

Government Innovation Around the World

This paper reviews modern government innovation, from its historical origins in Public Management and Reinventing Government movements in Britain and the US, to today's permutations in different regions of the world. Institutional catalysts for these national reform movements ranged from American distrust of government to reforms promoted by the multi-lateral lending institutions. These actions occurred in the context of the fall of Communism and the emergence of the market model and the new information economy. The paper surveys lessons learned from two decades of government reform efforts and highlights a number of examples of government innovation that ensued as a result.

The Triad of Sustainable Development: Promoting Sustainable Development in Developing Countries

Sustainable development was defined in 1987 in a report of the World Commission on Environment and Development (also known as the Brundtland Report) as development that “meets the needs of the present without compromising the ability of future generations to meet their own needs.” The ability of developing countries to practice sustainable development is affected by many factors, three of which are defined in this article. When acting in harmony, these three factors can make sustainable development a more achievable goal: (a) domestic policy actions, including steps taken toward creating open and free market economies, sound and enforceable environmental policies, and public participation in decision making; (b) financing policies of the bilateral and multilateral lending institutions; and (c) private sector investment and clean technology development. The interaction of these factors forms a triad for sustainable development. This article discusses these factors and offers recommendations for furthering a positive relationship among them in promoting sustainable development in developing countries.

Banking Responsibility and Liability for the Environment: What Are Banks Doing?

No-strings-attached lending is anathema to the serious commercial banker, who sees only a wafer-thin line between such ‘lending’ and the un-bank-like practice of giving (non-returnable) grants. Such doubts, indeed, are not confined to the banking industry. In the face of home grown problems of unemployment or health-care, for instance, democratically elected governments of donor countries are finding themselves under increasing pressure from their voters to cut back on bilateral assistance to hopelessly indebted taker-states. Multilateral lending and development institutions are facing an uncertain future, trapped in the vicious circle of bad debts that are all-too-steadily increasing, capital and funding quotas that are failing to materialize (eyes are currently on the US Congress), and borrowing that is becoming ever-more expensive. The African Development Bank is faltering; a Middle East Development Bank is in danger of being stillborn. The World Bank has recently been trying bravely to redress the balance: it has created a ‘multilateral debt facility’ for the most severely-indebted countries, and devised a numerical scale of national well-being that is more appropriate for the measurement of ecologically sustainable development than GNP per head of population. While these initiatives should not be belittled, good ideas are too often murdered by gangs of ugly facts.

The Role of Multilateral Lending Institutions in the Development Process

The 1980s are a turning point for the multilateral lending institutions. The progress and differentiation of developing countries, international debt difficulties, and the unwillingness or inability of the United States to provide its historic leadership for these institutions have raised a series of important questions about their future role in the international economy. Their future contribution to the growth of developing countries will depend, in large part, on achieving a consensus as to their role in an altered international economic environment and then gaining adequate political support for them to carry out that role. Achieving an intellectual understanding of the issues raised in an altered environment will be an important step in resolving those questions and reaching a consensus. As a contribution toward that understanding, this article addresses that topic. It starts with an evaluation of the analytical underpinnings of the formation and early activities of the multilateral lending institutions and then briefly considers their evolution and contributions to the international economy in the years prior to the 1980s. Thereafter, it notes the changes in the international economy and in our understanding of the development process. Next, it addresses the issues that must be resolved for a clear mandate for multilateral lending institutions. Finally, the article considers issues pertaining to the division of functions between the global institutions, on the one hand, and between the World Bank and the regional development banks, on the other.

The mines, class power, and foreign policy in Zambia

In the 1960s the new leaders of independent Zambia initiated policies purported to lessen the state's dependence upon the colonial metropole, Great Britain, and the settler regimes of the region.1 Yet by the late 1970s, Zambia began to borrow heavily from the multilateral lending institutions of the West. The government also appeared to be relying again upon the southern neighbours despite the heated battle for liberation in the region. The exclusive dependence of the colonial and early independence years seemed to give way to a multilateralization of dependence. The realignment of the Zambian state towards foreign capital and regional settler regimes fundamentally differed from alliances and policies announced by the regime's leaders. And it is in the post-1973 period that new directions became marked in the conduct of foreign policy. The reasons for this growing realignment, I argue, lie in the intimate connection between the nature of the productive system in Zambia, local class formation, patterns of international constraints and what one author calls 'transnational class cooperation'.2 Zambia's mineral industry is part of an international system of production and exchange of commodities. As a consequence, its own domestic patterns of class power reflect international interests as well as internal pressures. The governing group in Zambia is seen in this article as a 'class in formation' with deep divisions within it. The analysis explores how different 'fractions' appeared within this governing class and pressed for different foreign policies. Also, in exploring the health of the mining industry, I outline how international and domestic needs interacted in the formation of the overall foreign policy of the Zambian state in the 1970s. My approach is not at one with the argument that Zambia's governing class is a totally subservient comprador class, nor that a local national bourgeoisie is firmly in control of policy. Rather it sees much contestation and dispute which derives from battles between the fractions within the governing class and friction

Development Theory and the Multilateral Development Banks: An Assessment of the Effectiveness of Strategies Used in International Development Finance

Abstract. Although they are leading institutions in the world of modern development finance, the multilateral development banks have not been very explicit in outlining the development theories upon which they base their loan operations. This paper assesses the utility of the three prime theories employed by these institutions: the project approach, the macroeconomic (gap theory) approach, and the social welfare (or income distribution) approach. It indicates the questions to which each approach addresses itself, and it indicates weaknesses and theoretical inadequacies of each as a primary or sole development tool. Only a balanced and careful use of all these sometimes contradictory approaches will permit the multilateral lending institutions to fulfill their multifaceted obligations.