Global Economic Governance and the Development Practices of the Multilateral Development Banks

Susan Park,Jonathan R. Strand

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317568544
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

As pillars of the post-1945 international economic system the Regional and Sub-Regional Development Banks (RSDBs) have long been considered mini-World Banks, reiterating the policy approach of the largest official multilateral development lender in the world. The main objective of the collection is to identify what role the RSDBs play in global economic governance and why.

This edited collection draws together cutting edge original research on these understudied institutions. In the burgeoning sub-field of global economic governance as well as the broader study of international organisations (IOs), too often the focus remains on the World Bank and the International Monetary Fund (IMF). Second-order IOs, such as the RSDBs, receive much less attention despite their longevity and regional importance. This volume corrects this oversight by bringing together methodologically diverse research on the RSDBs that interrogates the role and impact of these organisations in global economic governance. The book investigates: the African Development Bank (AfDB); the Asian Development Bank (AsDB); the Inter-American Development Bank (IDB), and the European Bank for Reconstruction and Development (EBRD) and select sub-regional development banks in comparison to the World Bank Group.

This work will be of great interest to students and scholars of IPE, IR and Development Studies.

Part 1

Explaining the policies of the MDBs

1 Global economic governance and the development practices of the multilateral development banks

Susan Park and Jonathan R. Strand

Where do the regional development banks (RDBs) fit within the contentious debate over the power and impact of international financial institutions (IFIs), often discussed under the rubric of the Washington Consensus? Curiously, it is not a question frequently asked. Yet it should be. The International Monetary Fund (IMF) and the World Bank are frequently invoked as either friends or foes of developing countries. These institutions exist to provide financing for economic growth and development – providing loans, technical assistance, grants and guarantees to developing countries with limited access to private capital markets and experiencing significant balance of payments problems. Yet since the 1980s these ‘sister’ institutions have been attacked for their prescriptive (Washington Consensus) policies, harsh conditionalities and questionable success (Mosely, Harrigan and Toye 1991; Peet 2003; George and Sabelli 1994).¹ Scholars debate whether much has changed since lending modifications were introduced in the 1990s, contributing to the discussion over whether this constitutes a post-Washington Consensus (Kuczynski and Williamson 2003; Onis and Senses 2005). Some argue that the Bretton Woods institutions today exemplify ‘provisional governance’ such that the Fund and the Bank are now aware of the possibility of failure even as they prescribe their standard policy recommendations (Best 2014).

Since the global financial crisis of 2008, scholarly and policy attention has remained overwhelmingly on how to fix the global financial architecture, comprised of the IMF, the World Bank, the G20, and the reconstituted Financial Stability Board (see, for example, RIPE 2012, Special Edition). Given that most of the oxygen for analyzing global economic governance continues to be spent on these universal IOs, the regional development banks remain overlooked. It is surprising just how little has been written on the African Development Bank (AfDB), the Asian Development Bank (ADB), the Inter-American Development Bank (IADB), and the European Bank for Reconstruction and Development (EBRD). There even exists an entire overlooked sub-category of ‘sub-regional’ multilateral development banks such as the Caribbean Development Bank (CDB). These banks are neglected despite sharing the same policy space as the IMF and World Bank, both of which

continue to be the subject of hotly contested debates over their power and impact. There is little scholarly analysis of RDBs despite their longevity and regional importance and irrespective of the fact that all the RDBs were modeled on the World Bank; share many of the same member states on their boards; have similar or the same policies; and often engage in co-financing with the World Bank.

Two possible assumptions explaining their relative neglect spring to mind: first, that because they resemble the World Bank there is little to say – what stands for the World Bank must be applicable to the ‘other’ MDBs. Second, that because these are regional banks concerned with regional development issues and with predominantly regional members, they need not concern scholars of global economic governance. This volume aims to dispel both of these notions by bringing together work on RDBs that interrogates the role and impact of these banks in the international political economy. The book grapples with an important empirical puzzle regarding their role in global economic governance to shed light on the matter of whether RDBs should be subject to the same criticism as the World Bank. It seeks to unpack why attacks on the ‘other’ MDBs are muted and few, exploring for example whether RDBs are subject to less criticism because their regional member states have greater ownership and therefore protect the reputation of ‘their’ bank from criticism or whether it is because they operate in a fundamentally different manner.

RDBs in global economic governance: different to the World Bank?

In examining the RDBs in global economic governance we challenge the idea that what stands for the World Bank stands for RDBs. From the very beginning of RDBs the literature aimed to establish what made these institutions unique (White 1970). Despite being modeled on the World Bank, all RDBs have features that aim to distinguish them. While the World Bank is a universal organization open to all sovereign states and operating globally,² RDBs are focused on providing financing for economic growth in their regions, although for some of the banks, such as the ADB and EBRD, their conception of their region has broadened considerably. In the late 1950s and 1960s when most of these banks were created (bar the EBRD which emerged at the end of the Cold War), the developing regions of Africa, Asia, and Latin America and the Caribbean were starved of liquidity. Regional member states aimed to create indigenous institutions to raise funds to finance economic growth while recognising the need for extra-regional capital. This informed the decision by most of the architects to base their bank design on the World Bank and to actively seek extra-regional donor funding (African states chose not to seek funding). The banks aimed to generate ‘additional’ funding for their region to offset pre-existing levels of official development assistance (ODA) and mitigate the political vagaries of bilateral aid disbursements. Other differences are subtle: the AfDB, ADB, and IADB all included provisions in their articles of agreement to support intra-regional projects, although this would prove difficult given the structure of the economies of Africa and Latin America, heightened nationalism, and mistrust among states in Asia (Bull and Bøås 2003; Mingst 1990).

Irrespective of the conservative ‘Western’ financial structure of these RDBs (Dutt 2001: 249), the banks were imbued with the spirit of regional cooperation. Given the revolutionary fervor of states moving towards or celebrating independence, the possibilities associated with communist, ‘Dependencia’ and state-led development approaches and the prospects for pan-African and American ideas, these banks epitomised what states in their own regions could achieve. Curiously, the dominance of regional ‘ownership’ of the banks would not necessarily translate into the formulation of substantially different development ideas but rather influence membership, staffing, and management issues (Mingst 1990). Lending practices were therefore not dissimilar, although the banks emphasized lending to different sectors: the IADB focused significantly on social-sector lending in its first few decades and was well funded, with significant United States (US) support (Dell 1972). The ADB focused on large-scale infrastructure lending and was considered a highly technical institution that was financially conservative (Watanabe 1977). The AfDB had difficulty finding ‘bankable’ projects and raising funding from the beginning. This stemmed from its refusal to have extra-regional members, making it near impossible for regional members desperate for capital to make use of the institution (Fordwor 1981). Less is known about the lending practices of the sub-regional development banks.

It was not until the 1980s that RDBs shifted towards sectoral lending that was similar to the World Bank’s (Culpeper 1997).³ Yet even when RDBs’ portfolios began to look more like those of the World Bank, differences remained. They lagged behind the World Bank considerably in introducing program lending (such as structural adjustment loans) from the 1980s, and lent less than the World Bank for program lending and with less conditionality and oversight. That RDBs have not received the same vitriolic criticism may be because their regional member states have greater ownership and have shielded ‘their’ bank from criticism or because RDBs do not behave the same way as the World Bank. In sum, the volume breaks new ground by examining the cause of RDB behavior, both independently and with reference to the World Bank. In this volume we argue that RDBs act in accordance with their resource dependence and their legitimacy concerns (detailed below), which lead them to address the same policy issues as the World Bank but at different speeds and with different degrees of interpretation and adoption, from both each other and the World Bank. This in turn creates new sites for the creation and adoption of global development practices, which opens up new fields of investigation for students of global economic governance.

Theorising difference: the resource dependence and legitimacy of RDBs

The volume identifies the source of policy and governance changes initiated by each of the banks in exploring their role and influence in the international political economy. This is important for identifying what drives these international organizations (IOs).⁴ Each of the contributions to the book probes the basis for change in the banks with regard to specific policies, strategies, and operations. Theoretical debates over the role of the IMF and the World Bank are based on whether or to what extent these institutions are independent of their member states (Hawkins et al. 2006; Woods 2006; Weaver 2008; Park and Vetterlein 2010). This volume contributes to the scholarly literature by interrogating the ability of RDBs to present their own expert authoritative knowledge of development financing as opposed to acting merely as conduits of their member states’ interests and preferences or being shaped by civil society or pressured to emulate the World Bank. The answers highlight the complexity of how power, resources, and ideas interact, requiring multifaceted explanations.

Within the theoretical literature on IOs in general and the Fund and the World Bank specifically, scholars question the extent to which IOs determine their own actions. The rationalist Principal-Agent (P-A) model has been prominent in articulating a framework for IO autonomy within its relationship to member states (Hawkins et al. 2006). This is supported by analyzes of formal power within the banks (Strand 2003, 1999). This approach establishes the puzzle of how, why and when these IOs fail to meet (powerful) members’ interests. In this way, the tensions and nuanced relationships between RDBs as relatively autonomous authoritative ‘agents’ and their ‘principal’ member states are outlined (Hawkins et al. 2006). This contrasts with the constructivist scholarship on IOs that examines how the relative autonomy of IOs allows these bureaucracies to develop an independent internal culture that shapes their decision-making processes even to the point of becoming dysfunctional and hypocritical (Barnett and Finnemore 2004; Weaver 2008).

Recognising the relative autonomy of the RDBs as bureaucracies run independently by bank management but subject to the demands of their member state executive boards, this book takes up the theoretical concerns regarding why and how RDBs operate the way they do. The volume therefore feeds into debates on whether RDBs like the World Bank can be accused of being foreign policy instruments of powerful states such as the United States (Babb 2009) or whether they are independent institutions that shape member states’ interests and preferences, making states ‘legible’ (Barnett and Finnemore 2004; Broome and Seabrooke 2012). Constructivist accounts recognize the non-state-centric nature of idea and policy formulation within IOs (Park and Vetterlein 2010). In analyzing the IMF and World Bank, constructivists argue that IO behavior is explained by organizational culture, routines and identity, including the role of ideas and the actions of bureaucrats (Chwieroth 2008; Park 2010; Weaver 2008). Constructivists have mapped the policy formulation process in various IMF and World Bank issue areas, demonstrating that ideas with global reach do not necessarily originate within the institutions themselves, or if they do, may have originally been constituted very differently from the final policy product (Park and Vetterlein 2010). As scholars of RDBs we seek evidence that culture influences whether change is more or less difficult, while identifying the key drivers of the banks’ development practices.

In demonstrating the cause of each bank’s behavior, the contributors thus weigh the role of the internal versus external environment in shaping the organization’s actions. Internal influences involve the decision-making of the banks’ management teams, which are to differing degrees independent of the member states on their executive boards. This contrasts with the external influences, which may include donor and borrower member states, civil society actors and the World Bank. In investigating the decision-making process, the contributors document which factors best explain each case. This volume therefore adds to the theoretical debate on the basis for IFI behavior. Given that RDBs are structured similarly to the World Bank, it is essential to examine whether what holds for the World Bank holds for the ‘other’ MDBs.

After identifying the cause of the change, the chapters assess whether the banks are unique in their policy approach, follow the World Bank blindly, or find active or passive ways to resist emulating the World Bank. Beyond examining the extent of World Bank emulation, the volume seeks to investigate the extent to which RDBs are extensions of the World Bank approach to global development, feeding into debates concerning the structure of global economic governance. This is especially important given the larger membership shares and votes that rising powers such as China, Brazil, India, and South Africa have in their regional banks. Alternative theoretical approaches such as world polity and neo-Gramscianism argue that IOs pursue unequal power relations in the international political economy. For example, the latter argue that a hegemonic bloc of global elites in powerful industrialized states and IOs such as the World Bank construct dominant ideas, leaving developing countries with no alternative way to shape their own economic development path (Bøås and McNeill 2004; Goldman 2005). Critical insights from neo-Gramscian approaches can help direct our enquiry into the power dynamics between regional and non-regional interests in the RDBs, and this approach is applied in the case of the European Bank for Reconstruction and Development – the most explicitly liberal of the RDBs (see Shields, this volume).

However, the volume also focuses on the extent to which borrower and regional member states’ changing geo-economic weight may be altering the international political economy, as discussed in the section below.

The volume produces textured research that explores multiple layers and interactions rather than relying on a single explanation of bank behavior (e.g. formal power relations). This boo...