Multilateral Development Banks

There seems to be a plague unlike any other rapidly developing in the world today.  This plague we call ineffectiveness seems to particularly target multilateral banks.  The International Monetary Fund, the World Bank and the Asian Development Bank have recently been victims of this illness and continue to pose as a threat on their existence.

The ineffectiveness of Multilateral Development Banks may be attributed to several factors ranging from the lack of policy coordination, duplication, globalization and inefficiency to uphold present policies and propose progressive reform policies.

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LACK OF POLICY COORDINATION
Policy coordination or harmonization among the World Bank and other Multilateral Development Banks are slowly picking pace.  In 1998, the World Bank unveiled its new Comprehensive Development Framework that aimed at maximizing policy coordination between the World Bank and other Multilateral Development Banks.  As a matter of fact, the World Bank’s main governing body continuously stressed “the importance of harmonising operational policies and procedures by the Bank, other MDBs and bilateral aid donors, with the objective of enhancing development effectiveness, increasing efficiency and reducing administrative burdens.”[1]
Despite the importance of harmonizing all Multilateral Banks with the World Bank’s policies, several dissenters oppose such move.  These trade groups claim that biases towards rapid unilateral trade liberalization to enter national development plans through the back door is going to be one of the disastrous effects of the universal spread of Bank-led diagnostic trade studies.[2]
All in all, policy coordination between the World Bank and other Multilateral Development Banks is carefully gaining ground, however, its implementation would take time, something the World Bank has little of.  Policy coordination may take a longer time than what the World Bank can afford before it is classified as inutile.

GLOBALIZATION
The major impact of globalization on Multilateral Development Banks is devastating.  Due to the current move towards a unified global community, the World Bank, International Monetary Bank and the Asian Development Bank are currently fighting hard to justify its existence.

The World Bank
The World Bank’s initial purpose was to finance and help the reconstruction of Europe, after the Marshall Plan was implemented, this primary function became a superfluity prompting the World Bank to enter into other endeavors – to bankroll development in other countries.[3]  The World Bank was successful in aiding developing countries for a time, however, the end of the World Bank is fast approaching. Because of globalization, private investment has become prevalent and is currently overshadowing the World Bank’s primary function.  As Adam Lerrick placed it, “Now we live in a world where there are huge global capital markets, where, if anything, investors are too willing to invest in developing countries”[4] driving the World Bank into extinction.

International Monetary Bank
Just like the World Bank, the IMF lost its primary mission and is now slowly losing its current purpose because of globalization.  The initial purpose of the International Monetary Fund was to create a fixed standard of currency based on gold reserves of a nation, the shift from gold to market standard pushed the IMF to enter the business of aiding developing countries through funding.[5]

The evolution of the global community brought with it several changes that threaten the International Monetary Fund’s existence.  The current “speed and growth of private currency transactions marginalize the effectiveness”[6] of the International Monetary Fund.  Unlike before when private currency transactions were at a minimum, today, private currency transactions are invading the global arena.  These private sector transactions are much greater than the IMF’s funding and most importantly they are readily available.[7]

Another change brought about by globalization is the growing presence of private direct foreign investments.  As with private transactions, the funding of these private investors dwarfs the funding of the International Monetary fund and these private investments are more utilized today than public investments, to wit:

. . . private investment dwarfs public investment in developing countries and accounts for more than 80 percent [of $285 billion] of net long-term flows” in less developed countries. Private investment grew by 60 percent ($60 billion) in 1996, while public investment in the form of development assistance shrank by 23 percent ($12 billion)[8]

Asian Development Bank

Together with the World Bank, IMF and other Multilateral            Development Banks, the Asian Development Bank is finding globalization as a threat to its existence.  Because of private funding, the increase in foreign direct investment and the increase in private transactions, the Asian Development bank is slowly losing members an soon shall also be obsolete.

INEFFCIENCY IN REFORM POLICIES
Another factor that threatens the existence of Multilateral Banks is its failure to create and enforce progressive reform policies and effect changes that ensure its donor’s continued support, its donee’s continued growth and its own stability.
World Bank
The policies of the World Bank although more in consonance with the current trend than most Multilateral Development Banks, is not perfect and needs fine tuning.  According to several analysts, the World Bank would better serve its function if it would not limit itself to just lending and to make use of its characteristic as a global institution to venture into creating global action through influence, to wit:

. . . the bank could have more impact on poverty by making better use of its best assets: the expertise of its staff and its ability to coordinate global action[9]

This is further strengthened by the fact that Development Banks and Aid agencies play a crucial role crucial role in conceptualizing and implementing decentralization reforms.[10]

International Monetary Fund
Reports indicate that instead of economically helping developing countries, the International Monetary Fund are making these countries worse than they were, statistics show that:

·         Of the 89 less developed countries that received IMF loans between 1965 and 1995, 48 are no better off economically today than they were before receiving IMF loans;

·         Of these 48 countries, 32 are poorer than they were before receiving IMF loans; and

·         Of these 32 countries, 14 have economies that are at least 15 percent smaller than when they received their first IMF loans.[11]

Part of this ineffectiveness can be directly attributed to the International Monetary Fund’s inability to exact policies that effect change.  Failure to encourage economic growth policies and failure to enforce the requirements it imposes are some of the key areas that the IMF has difficulty in upgrading policies

In order for a country to receive a loan from the IMF, it must first subscribe to several conditions imposed by the IMF.  These conditions are specific economic policies that are aimed to help the country’s economy.  The IMF’s purpose for assigning these conditions are admirable, however, it lacks field personnel to oversee that these policies are implemented properly.  The IMF fails to encourage economic growth using these imposed conditions since in most cases, the country acquiring the loan shall comply with these conditions by “raising taxes, raising tariffs to increase revenues, or devaluing its currency by printing more money, thereby causing more inflation”[12] rather than by performing efficiently.  Furthermore, the IMF also fails in enforcing these requirements or conditions imposed since it is ineffective in holding countries accountable for violating these agreements.[13]

Asian Development Bank
The Asian Development Bank is currently facing a similar crisis.  The lack of significant progress on its reform agenda has prompted Britain, one of its major investors, to withdraw a prior commitment to provide additional funds.[14]  The lack of a progressive reform agenda is not the only thing that is haunting the Asian Development Bank, it is also guilty of high “reliance on consultants who often lack authority rather than on staff to oversee projects”[15] and lack of resolve to willing suspend the disbursement of loans to member countries when “reforms, like improving governance in developing member nations, failed to make sufficient progress.”[16]  With all these developments, comes the question as to whether the Asian Development Bank really serves its purpose or is it just like other aid banks that through its ineffectiveness is forced to desperately yet miserably try to justify its existence.
DUPLICATION
Another key point in the ineffectiveness of Multilateral Development Banks is the duplication of purpose.  Take the IMF for example, what started to be an “economic policy advisory institution that attempted to stabilize exchange rates by buying and selling foreign currencies”[17] without any lending services is now greatly involved in funding developing countries, a purpose specifically designated by its charter to the World Bank.  These two are not the only ones that have overlapping functions, the Asian Development Bank also has the same primary purpose as other Development Banks – to provide loans to less developed countries, thus, duplicating the World Bank’s function.

Conclusion
To conclude, reports today are all in agreement that AID agencies despite their good purpose remain ineffective.  The changing environment and the move towards globalization has somewhat rendered the World Bank, IMF and the Asian Development Bank useless and to literally justify its existence.  Large-scale investors that are targeting developing countries as proper investments are now overshadowing the function that were once that of Multilateral Development Banks.  It would not be long before we see these institutions as nothing more than remnants of the past.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BIBLIOGRAPHY

 

Fox, Justin (2007 May 3). The World Bank’s real Problem. Retrieved January 28, 2008, from http://www.time.com/time/magazine/article/0,9171,1617526,00.html

 

IndiaTogether (2003). Ganging up on Development. Retrieved January 28, 2008, from http://www.indiatogether.org/2003/aug/eco-coherence.htm

 

Johnson, Bryan (1997 May 6). The International Monetary Fund: Outdated, Ineffective and Unnecessary. Retrieved January 28, 2008, from http://www.heritage.org/Research/InternationalOrganizations/BG1113.cfm

 

Rohdehwold, Rainer (2006). Managing Decentralization: Interministerial Bodies, Policy Coordination, and the Role of Development Aid Agencies. Retrieved January 28, 2008, from http://www.adb.org/Documents/Periodicals/GB/GovernanceBrief15.pdf

 

Sg.News (2008 January 19). ADB Admits to Problems over Lending to Poor Nations. Retrieved January 18, 2008, from http://sg.news.yahoo.com/afp/20080118/tbs-adb-loans-poverty-e65dddb.html

[1] IndiaTogether (2003). Ganging up on Development. Retrieved January 28, 2008, from http://www.indiatogether.org/2003/aug/eco-coherence.htm
[2] Ibid
[3] Fox, Justin (2007 May 3). The World Bank’s real Problem. Retrieved January 28, 2008, from http://www.time.com/time/magazine/article/0,9171,1617526,00.html
[4] Ibid.
[5] Johnson, Bryan (1997 May 6). The International Monetary Fund: Outdated, Ineffective and Unnecessary. Retrieved January 28, 2008, from http://www.heritage.org/Research/InternationalOrganizations/BG1113.cfm
[6] Ibid.
[7] Ibid.
[8] Ibid.
[9] Fox, n3.
[10] Rohdehwold, Rainer (2006). Managing Decentralization: Interministerial Bodies, Policy Coordination, and the Role of Development Aid Agencies. Retrieved January 28, 2008, from http://www.adb.org/Documents/Periodicals/GB/GovernanceBrief15.pdf
[11] Johnson, Bryan (1997 May 6). The International Monetary Fund: Outdated, Ineffective and Unnecessary. Retrieved January 28, 2008, from http://www.heritage.org/Research/InternationalOrganizations/BG1113.cfm
[12] Ibid.
[13] Ibid.
[14] Sg.News (2008 January 19). ADB Admits to Problems over Lending to Poor Nations. Retrieved January 18, 2008, from http://sg.news.yahoo.com/afp/20080118/tbs-adb-loans-poverty-e65dddb.html
[15] Ibid.
[16] Ibid.
[17] Johnson, n5

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