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date: 20 January 2022

Debt and International Organizationsfree

Debt and International Organizationsfree

  • Pablo NemiñaPablo NemiñaCONICET; Department of International Relations, Facultad Latinoamericana de Ciencias Sociales Argentina
  •  and María Emilia ValMaría Emilia ValCONICET; School of Interdisciplinary High Social Studies, Universidad Nacional de San Martin

Summary

International financial organizations that lend to developing countries are the subject of controversy. Their functions, structures and effectiveness have generated important debates across disciplines, analysts and positions on the ideological-political spectrum. What interests and logic motivate the international financial institutions’ (IFIs) loans? Following an international political economy perspective and mainly based on the literature produced in the early 21st century, we analyze the role played by three variables: the geopolitical and financial interests of powerful global actors, institutional and bureaucratic logic, and the borrower’s interest and domestic policy. These three variables interact and influence the financial decisions made by the International Monetary Fund (IMF), the World Bank, and the major regional development banks (the Inter-American Development Bank [IADB], Asian Development Bank [AsDB], and African Development Bank [AfDB]). On the other hand, what are the main economic and political effects in the recipient countries? The IMF’s credit tackles balance-of-payments crises mainly through adjusting domestic output and consumption, which usually has negative social costs. Development bank lending has diverse effects. Although it tends to boost growth and strengthen domestic accountability, it does not always guarantee the attainment of development goals. In this sense, the literature has found negative impacts on labor rights and forestry, while improvements in health and education cannot always be sustained in the long run.

Subjects

  • Development
  • Organization
  • Political Economy

Introduction

International financial institutions (IFIs) that lend to developing countries are deeply controversial. While leftist views condemn them as a domination mechanism (Toussaint & Millet, 2010) and libertarians object to their lack of efficacy (Meltzer, 2011), other analysts consider them to be perfectible but valuable instruments for development (Hillebrand, 2017).

Until World War II, external financing to countries was limited to private capital markets (essentially the City of London) and to official bilateral credits. The creation of the International Monetary Fund (IMF or the Fund) and the World Bank (WB or the Bank) at the Bretton Woods Conference boosted the official multilateral external debt and, with it, new foreign exchange financing mechanisms for countries in financial need.1 In the case of the IMF, these took the form of short-term credits in the event of a liquidity crisis; the Bank, in contrast, offered long-term loans to promote development (Eichengreen, 2019). In both cases, these were loans with a low interest rate but with conditionality and preferential status (that is, they exclude a restructuring unless the creditor voluntarily accepts it). Due to the fact that in both institutions, central countries are overrepresented and the United States still has veto power—the most important “frozen asymmetry” of the IMF governance structure (Lesage et al., 2013)—periphery nations sought more beneficial alternatives. In the light of developmentalism and decolonization, several regional development banks were created, which replicated the World Bank structure but with a regional flavor (Park & Strand, 2016). Since the earliest days of financial globalization, these financial institutions have concentrated their activity on the periphery, where capital is always needed, consolidated complex and very dynamic economic and political relationships with borrowers, and used credits as a vehicle to promote policy reforms inspired by different ideas and interests.

One type of international organization (IO), formal intergovernmental IOs, can be defined as entities consisting of members from three or more states that are oriented toward the pursuit of specific objectives (Gutner, 2017) related to the common interests of the members (Archer, 2014). These organizations are founded on the basis of voluntary interstate treaties or agreements in which their objectives, capacities, and means are made explicit, as well as the obligations and rules that states must comply with (Hurd, 2014). In addition, they have a streamlined, technical, material, and permanent administrative structure, and representative and consultative governing bodies that meet and are elected periodically, which provide stability, durability, and cohesion (Archer, 2014).

This article focuses on the most relevant economic, financial, and development-related intergovernmental organizations, which provide both liquidity and development financing to states. They include the IMF, the World Bank, and the major regional development banks—the Inter-American Development Bank (IADB), Asian Development Bank (AsDB), and African Development Bank (AfDB)—and two of the most prominent new IFIs: the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB).

What interests and logics motivate the IFI’s loans? What are the main economic and political effects of those loans in the recipient countries? What are the consequences of the creation of new IFIs led by emerging powers like China? This article will conduct a review of the literature around these three questions. Its approach to the financial relationship between the IFIs, the periphery countries (the main recipients of their funding), and the central and emerging powers is based on an international political economy perspective, which considers debt as a dependent and independent variable. Different problems regarding debt and indebtedness will be addressed, such as the political and institutional dynamics and interests within financing organizations, the effects of these lending strategies on the recipient countries, and the recent transformations of global financial governance that have taken place since the creation of the new Asian-based IFIs.

The first section reviews the literature on the IMF’s debt; then, findings related to the multilateral development banks (MDBs) will be studied; and, finally, the changes and continuities in the global financial governance as promoted by the AIIB and the NDB will be analyzed.

Liquidity Financing: The IMF

Created in 1944 as a central institution of the Bretton Woods economic order, the original mission of the International Monetary Fund (IMF) was to oversee the stability of exchange rates, avoid discriminatory exchange practices, establish an international means of payment, and financially assist countries suffering balance-of-payments imbalances. The Bretton Woods system was based on pillars like the combination of flexible exchange rates regimes with capital controls, which allowed high levels of autonomy in terms of monetary policy; the establishment of the U.S. dollar as a global reserve currency; and the creation of global economic institutions that fostered the normative system basis, that is, the IMF, the World Bank, and the General Agreement on Tariffs and Trade, or GATT (later the World Trade Organization, or WTO), which oversaw liquidity provision, development lending and global trade relations, respectively.

Over the course of its 75-year history, the IMF has reinvented itself to adapt to new global circumstances on several occasions (Joyce, 2012; Reinhart & Trebesch, 2016). During its early years of existence, the Fund granted small credits to both industrialized and developing countries, within the framework of adjustment programs, with conditionality restricted to establishing quantitative targets on monetary expansion, and fiscal and trade balance. At the beginning of the 1970s, the Bretton Woods system was replaced by one based on deregulation of international capital flows and flexible exchange rates. With the outbreak of the debt crisis in the 1980s, the Fund centralized its relationship with peripheral countries, making financing conditional on the implementation of structural adjustment programs in line with the decalogue of the Washington Consensus (Sgard, 2016). The term Washington Consensus was coined by John Williamson in 1989 to summarize the consensus among technocratic and political Washington regarding the set of economic policies they promoted for the periphery, which mainly consisted of the privatization of public enterprises, market deregulation, liberalizing trade and Foreign Direct Investment (FDI) flows, promoting market-determined interest rates, and establishing floating exchange rate regimes. This set of policies was promoted by the IMF and the World Bank in the periphery, especially in Eastern Europe and Latin America. In the 1990s, the IMF became a quasi-lender of last resort in the face of recurring financial crises, increasing the magnitude and speed of disbursement approvals (McDowell, 2017; Mody & Saravia, 2013), which, on many occasions, was conditional on the implementation of neoliberal policies that deepened the recessive impact of the crises (Babb & Kentikelenis, 2018).

Following Mudge (2008), this article understands neoliberalism as a system conformed to by three worlds: intellectual, bureaucratic, and political. The interaction of these three arenas is what forms neoliberalism. From an intellectual perspective, neoliberalism puts a strong emphasis on self-regulated markets as a device that enables individual freedom. From a bureaucratic perspective, it consists of the political decisions which promote liberalization, privatization, and monetarism. It aims to establish competition between companies, while dismantling state monopolies. Lastly, from a political point of view, it sees the state as an actor that should not intervene and distort market operations. Even if it is possible to separately identify the intellectual, bureaucratic, and political arenas, they all operate and interact with each other constantly, since it is necessary to have ideas, which are then implemented by bureaucracies and that define the role the state plays in the economy. As a result, neoliberalism is an ideology that intellectually understands and defines the relationship between states and markets, giving the former a limited role.

During the 2000s and more clearly after the 2008 global financial crisis, the IMF turned toward the Post–Washington Consensus. Without disputing the preeminence of the market economy, it revived public regulation and good governance as requirements for growth (Güven, 2018). In this wave, the institution pondered income redistribution, countercyclical fiscal policy, and capital account controls, and contemplated the possibility that neoliberalism increased (or could increase) inequality (Clift, 2019; Ostry et al., 2016). But with the exception of the exchange rate scheme (Gallagher & Tian, 2017), these changes were more visible in the discursive dimension or were limited to economies with fiscal space (Clift & Robles, 2020; Grabel, 2011; Forster et al., 2019). Rather than shifting its paradigm, the Fund has strategically recalibrated the neoliberal orthodoxy to adapt it to the economics of the Great Recession, the revision of some assumptions of the neoclassical paradigm in the economic profession, and the rise of new global powers such as China (Ban & Gallagher, 2015; Wang, 2018).

The Fund combines regulatory, advisory, and financial functions. The IMF’s credits are financed with capital previously subscribed by member countries (quotas), and contingent credit arrangements between the Fund and more than 40 central and emerging economies.2 At the end of 2020 the total quotas amounted to USD $685 billion; this figure plus the USD $576 billion available from contingent arrangements provides the IMF with financial resources of almost USD $1.3 trillion.

The IMF provides financing through various programs: the Stand-By Arrangements, aimed at solving short-term balance-of-payments imbalances; the Extended Fund Facility, focused on tackling balance-of-payments problems that require medium-term structural reforms; two precautionary lines that do not involve disbursements; and fast disbursement credits for use in emergencies. Except for the precautionary ones, programs have concessional lines within the framework of the Poverty Reduction and Growth Trust, which allow for longer repayment terms and subsidized rates.

The following sections will analyze the interests and logic that inform the IMF’s financial decisions and its effects on the borrowing countries.

What Drives IMF Credits?

Geopolitical and Financial Interests

As various authors have highlighted, changes in the role of the IMF in global financial governance can be largely explained by its adaptation to U.S. interests (Kentikelenis & Babb, 2019; Lichtensztejn, 2012). Neo-Marxists point out that since the 1980s, the United States has promoted financialized capitalism and neoliberal globalization through the IMF-World Bank-WTO hegemonic governance complex, which articulates the interests of private financial concerns and the U.S. Treasury Department, and has channeled these interests through the ideas purveyed by elite universities (Peet, 2009). However, differences of opinion emerge when scholars look at how the United States exerts this influence, and what its scope is.

There are four main mechanisms of U.S. influence on the IMF: the ability to veto relevant decisions such as capitalization; the granting of financing to allied countries (or the refusal of it to countries in conflict with the United States); the selection of staff and the management; and the formal voting and power structure (Woods, 2014).

Although it is difficult to establish conclusive evidence (Bird et al., 2015), U.S. allies tend to receive faster financing from the IMF (Mody & Saravia, 2013) and, in general, sign programs with softer (Stone, 2008) and less conditionality (Dreher & Jensen, 2007). They also receive a more optimistic debt sustainability analysis (Lang & Presbitero, 2018). By contrast, IMF surveillance of the U.S. economy is benevolent (Ugarteche, 2016) and has very little impact on it (Edwards & Senger, 2015).

Following the previous works of Oatley and Yackee (2004) and Gould (2006), countries receive more favorable treatment by the IMF when they are important recipients of investments from G7 countries (Presbitero & Zazzaro, 2012), or when the crisis in their economy affects U.S. banks (Broz & Hawes, 2006) or exporters, and local branches of global banks (Breen, 2014).3 In addition to powerful states, nonstate actors also play a role. Information and complaints from human rights organizations (Woo & Murdie, 2017) and nongovernmental organizations (NGOs) (Clegg, 2014) play a role in the IMF’s financial decisions or conditionality.

Geopolitical factors help to explain the IMF’s program initiation, funding generosity, program waivers, and compliance standards; however, the Fund also deviates from impartiality when global financial stability or economically relevant countries are at risk (Pop-Eleches, 2009). Political deviations from technocratic standards reflect the narrower, situation-specific economic and geopolitical interests of influential IMF member states.

Bureaucratic and Institutional Logic

International organizations tread a fine line between satisfying the preferences of powerful shareholders and maintaining their independence and credibility as technical agencies, in order to achieve which they must be perceived as legitimate institutions (Barnett & Finnemore, 2004). Like any organization, the IMF’s primary objective is to endure over time (Babb & Buira, 2005). Strange (1974) identifies two sources of autonomy for the IMF: its own resources and the growing decision-making capacity of its staff. As the workload of the Executive Board intensifies, it depends to a greater extent on the opinions of the staff, which in some cases pursues its own agenda aimed at gaining power, prestige, or autonomy from the Fund’s powerful members (Martin, 2006).

On this subject, it is important to consider the staff’s professional training and ideological orientation. From the 1980s onward, Anglo-American trained economists became predominant. They are experts who generally come from from English-speaking countries and have a doctorate in economics or finance granted by a university in the United States or Canada, and their professional backgrounds affect the orientation of conditionality (Chwieroth, 2013, 2015). An analysis of IMF’s recruitment policies revealed that, despite internal debates among management and the Executive Board on diversification, there was agreement on the appropriateness of conservative macroeconomic approaches and no demand for alternative economic policy prescriptions, which has contributed to shaping a homogenous and monolithic organization (Momani, 2005a). If there is ideological affinity between the staff and the borrower’s economic team, the program tends to be larger in magnitude and to have fewer conditionalities (Nelson, 2014, 2017). Besides, the Fund negatively evaluates countries that implement austerity policies outside of an economic program with the institution or that favor fiscal correction via increasing revenues rather than the preferred expenditure adjustment (Hinterleitner et al., 2016).

Organizational structure and culture are also important. Having their own Executive Director helps developing countries access larger loan amounts (Malan, 2018); the hierarchical culture of the IMF makes institutional change slower and more sensitive to issues related to the core mandate (Moschella, 2015; Reinold, 2017; Vetterlein, 2015). For example, during the 1990s the staff became the main advocate for setting a policy norm on multilateral debt relief (Momani, 2010). The Fund’s entrenched organizational culture has had a minimal effect on changing the status quo, despite internal efforts to change its guidelines on conditionality to address members’ concerns (Momani, 2005b). Institutional change can be incremental but also sudden, such as the promotion of structural reforms during the 1980s (Kaya & Reay, 2019).

Between external interests and institutional logic there may be differences or synergies. In the first case, the institution usually appeals to strategic or constructive ambiguity, which allows it to move forward in the short term but with the risk of eroding its legitimacy in the long term. This was the case with the reforms of the exchange rate policy norms (Van Gunten, 2017) and with the guidelines on conditionality (Best, 2012). In contrast, the adoption of the Washington Consensus provides an example of synergy between both dimensions, since it was neither an economic theory nor a particular list of reforms, but a transnational policy paradigm, shaped by both scholarly and political forces, and which was encouraged by the international financial institutions (IFIs) (Babb, 2013).

The Interest of the Borrower

A government’s decision to enter into a program with the IMF reflects the domestic economic situation and the political context (Vreeland, 2003). In this sense, democracies are more likely to seek financing to mitigate the negative social and political effects of an economic crisis (Nooruddin & Woo, 2015); however, this does not necessarily translate into successful efforts. In the 1970s, the Fund denied credits to popular democracies in Latin America that were experiencing external imbalances, but quickly approved disbursements to the dictatorships of Chile, Argentina, and Uruguay, which had seized power and promoted neoliberal reforms (Kedar, 2013; Nemiña & Larralde, 2018).

The geopolitical importance of the borrower has a positive effect on the financing disbursed by the IMF. This effect is more visible in Stand-By than in concessional credits, since the latter are reserved for small, low-income economies (Harrigan & El-Said, 2009; Reynaud & Vauday, 2009); likewise, relevant countries (defined as those with temporary membership of the UN Security Council) receive fewer conditionalities than the rest (Dreher, Sturm, & Vreeland, 2015).

The chances of signing an arrangement increase for countries dealing with exchange rate imbalances, high indebtedness, lagged elections, and political instability (Moser & Sturm, 2011). The degree of interconnection that the country in crisis has with other nations and the risk of contagion to other economies also have an influence, given the central role of the IMF in global financial governance (Poulain & Reynaud, 2017).

The borrower government’s political orientation influences the success of the reforms. While leftwing governments indebted to the IMF build coalitions to avoid implementing unpopular reforms, those on the right promote their implementation; in this sense, they can provide side payments to affected groups to obtain room for maneuver (Mukherjee & Singer, 2010). Consequently, some degree of internal commitment is required for conditionality to be effective (Dreher, 2009).

What Are the Effects of IMF Credits?

The literature on the effects of IMF financing on borrowers is vast. In this section, the focus is on those studies related to economic and sociopolitical consequences.

Economic Effects

The main objective of IMF credit is to avoid or mitigate balance-of-payments crises. To moderate them, in financialized capitalism it is important to reinforce the perceived creditworthiness of a country in order to moderate capital outflows and reduce the interest rate. The evidence on this subject is ambiguous. Although the announcement of large arrangements tends to contain capital flight, it fails to prevent the interest rate from rising (Cho, 2014) since investors interpret the decision to request financing from the Fund as a sign of insolvency. Other studies note that despite a decline in output associated with the IMF’s contractionary policies, this is not accompanied by an equivalent deterioration in credit ratings, since—according to their interpretation—it is offset by the signaling effect to investors. Thus, rather than a stigma, the arrangements provide a cushion for adjustment and reforms (Gehring & Lang, 2020). This effect is more visible in leftwing governments, since those of the right do not need to persuade private investors of their commitment to reforms (Cho, 2014). Some authors highlight the need for some authors highlight the need for the government to demonstrate a credible commitment to ensuring that the program is designed to put the economy on track, in order to help Fund programs achieve the “seal of approval” effect (Boughton et al., 2014).

The IMF’s effect on attracting private capital is also weak (Bird & Rowlands, 2009), and, due to a lack of coordination, it likewise fails to attract official bilateral financing (de Jong & Van Der Veer, 2010). The evidence shows that the mere participation of a crisis-ridden country in an IMF program does not revive investors’ confidence; instead, their long-term sentiment improves when governments enhance the credibility of their commitment to reforms by accepting severe conditions, specifically prior actions and performance criteria conditions (Vadlamannati, 2020). In general, Fund lending has a substantial and negative effect on FDI, but firms in various economic sectors differ in their attitudes toward it. Thus, IMF programs are associated with a substantively large and negative effect on investment in financial and construction-related FDI, two sectors that exhibit a high degree of external capital dependence and low sunk costs (Breen & Egan, 2019). It is important not to delay the institution’s intervention. When the program is approved in the face of a liquidity crisis, the Fund manages to attract private capital (Van der Veer & de Jong, 2013) and the country has a better chance of avoiding a banking crisis and further deterioration in the future (Dreher & Walter, 2010; Papi et al., 2015). Faced with a solvency crisis, the most appropriate decision for a debtor country is to restructure its debt, since an IMF arrangement does not modify creditors’ expectations, and also aggravates the future scenario by adding liabilities with IFIs that cannot be restructured (Guzmán & Heymann, 2015). In this sense, the IMF’s programs increase the probability of default (Jorra, 2012).

Sociopolitical Effects

Historically, the Fund’s programs promote exchange rate depreciations and fiscal adjustments, which manage to adjust the balance of payments at the cost of a decline in economic activity. There is a consensus that until 2000 the IMF’s programs were associated with an increase in poverty and inequality, especially due to a deterioration in the living conditions of low-income sectors; thereafter, the evidence is mixed. For some, the IMF’s programs continue to generate an increase in inequality, through the fall in income of the lower income sectors due to austerity policies and the flexibilization of the labor market. It is an effect that persists for up to five years (Lang, 2021). For others, since the introduction of poverty alleviation to the IMF’s agenda in the 2000s there has been a decline in inequality and poverty (Oberdabernig, 2013), although these have been years of relative bonanza for the periphery. Along the same lines, Bird et al. (2021) find no impact of the Fund’s programs on poverty or inequality in Low Income Countries (LIC). Other studies did not find a direct relationship between the arrangements and poverty, although they did observe an impact of trade liberalization, which had been actively promoted by the Fund since the 1980s. In this sense, either through direct or indirect measures, the combination of fiscal spending restriction, trade and capital account liberalization, and a monetary policy focused on inflation control and debt restriction, a deterioration in poverty and inequality levels can be expected in most cases (Forster et al., 2019).

In response to criticism, following the request of the US Executive Director and the initiative of various NGOs, since 2009 IMF programs with LIC have incorporated social spending targets (Clegg, 2014). They were later extended to programs with middle-income countries, but their impact was limited because in most of these cases these were indicative targets (Kentikelenis et al., 2016).4

In relation to health and education spending, Clements et al. (2013) find that IMF programs with LIC increase spending. However, recent works find that the positive effect is restricted only to health expenditures in sub-Saharan African countries (Kentikelenis et al., 2015); in general, structural adjustment programs are associated with a deterioration in public health (Hoddie & Hartzell, 2014); a lower level of health system access and increased neonatal mortality (Forster et al., 2020); and a decrease in education spending (Stubbs et al., 2020). Regarding the attraction of aid financing, arrangements usually attract it only for debt relief and budget support (the issues most closely related to the core areas of the IMF); in other issues such as infrastructure, health, or education, the effect is low or null (Stubbs et al., 2016).

There is consensus that employment is one of the areas most negatively affected by IMF financing programs. The IFI’s programs undermine collective labor rights by including laws designed to guarantee basic collective bargaining and freedom of association rights (Blanton et al., 2015), which turns businesses into clear winners in virtually all scenarios, as diminishing labor rights imply greater bargaining power for employers (Ohanyan & Androniceanu, 2017; Reinsberg et al., 2019). Despite the evidence that the more stringent IMF labor market conditionality is, the worse labor rights become, this negative effect is partially mitigated in the implementation process when domestic political circumstances favor the political representation of workers under a proportional representation system, or under a leftist government (Lee & Woo, 2021). The arrangements also succeed in promoting financial liberalization (Agnello et al., 2015; Mukherjee & Singer, 2010) and increase the chances of a coup due to the negative sociopolitical impact of the reforms (Casper, 2017). It is not surprising, then, that these programs are associated with an increase in social protest (Ortiz & Béjar, 2013), a deterioration of human rights (Abouharb & Cingranelli, 2009), and an erosion of democratic practices (Brown, 2009). However, Nelson and Wallace (2017) do not find that the programs deteriorate democracy.

Development Financing: Multilateral Development Banks

Created in 1944 at the Bretton Woods conference together with the International Monetary Fund (IMF), the World Bank (WB) is the world’s earliest and largest multilateral financial organization for development. Originally intended to provide resources for the reconstruction of European countries in the post–World War II period, it gradually redirected its attention toward the developing world and issues ranging from poverty to the state reform.

Several regional development banks (RDBs) were established between the late 1950s and the 1960s, whereof three stand out: the Inter-American Development Bank (IADB), the Asian Development Bank (AsDB), and the African Development Bank (AfDB). Together with the WB, these are the main traditional MDBs in terms of financial assets which lend to both public and private sector.5 After that period came the phase of subregional development bank creation in Latin America and Africa, and Europe’s boost to its own MDBs. Since the financial crisis of 2008, emerging powers promoted new development finance institutions and arrangements. Among them, the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) are the most prominent. Both oscillate between cooperation and competition with established MDBs and are discussed in detail in the next section.

The disparity in size and relevance of the WB with respect to the main RDBs is also reflected in the literature devoted to these institutions. In comparison to the overwhelming amount of work about the WB, the studies on RDBs are fewer and reflect a shorter tradition. Culpeper (1997) started an initiatory series, which was followed by Bull and Bøås (2003), Babb (2009) and, more recently, Park and Strand (2016). RDBs were understudied because they were considered smaller-scale copies of the WB; but although their institutional design and objectives were inspired by their “big brother,” due to rules and membership, regional perspectives permeate their institutional dynamics to a greater degree, helping them to guide rather than impose (Tussie, 1995). As a result, their borrowers are better represented, their loans reflect regional needs and particularities to a greater extent, and they have been less doctrinaire than the WB in promoting neoliberal ideas. Still, they are subject to the influence of the 20th-century great powers and address the same policy issues as the WB, but at a slower pace and with varying degrees of interpretation and implementation (Park & Strand, 2016; Strand, 2014).

Currently, the MDBs provide loans and grants for programs and projects to assist poor and developing countries in achieving sustainable development and poverty reduction. These institutions have grown in size and complexity, and have broadened their agenda, performing both financial and consulting roles and engaging with a wide range of issues (health, education, good governance, climate change, pollution reduction, refugee assistance, rural services, and technology and disaster risk reduction, among many others), reflecting the transformations in the development regime (Babb & Chorev, 2016).

As lenders, MDBs offer financing for investment projects or programs (they are more flexible credits), which promotes economic development by encouraging comprehensive policy changes or reforms of public institutions (Babb, 2009). They usually have special institutions or facilities for attending to the financing needs of low-income countries. For example, the WB group grant loans to the public sector through two agencies:6 the International Bank for Reconstruction and Development (IBRD), which lends to creditworthy low and middle-income countries, raising funds on the capital markets, and lends at (low but) near-market conditions; and the International Development Association (IDA), which provides long-term, low- or no-interest credit to poor countries by receiving contributions from wealthier member governments.7

What Drives MDBs’ Lending?

Geopolitical and Financial Interests

Loans and grants from MDBs have been used politically by their most powerful shareholders to promote their strategic objectives. These countries’ participation in international organizations shows their interest in using international financial institutions (IFIs) as instruments of foreign policy, among other motivations. Financial contributions from OECD (Organisation for Economic Co-Operation and Development) countries’ governments are distributed among organizations whose foreign aid portfolios are similar to their ideal portfolios, allowing these governments not only to minimize delegation costs, but also maintain leverage over allocation decisions (Schneider & Tobin, 2016). Domestic policy also influences the channeling of foreign development lending through multilateral organizations, because when taxpayers are more skeptical about the benefits of assistance, governments use multilateral organizations to reassure them that their money is properly spent (Milner, 2006). Although the achievement of national strategic objectives is an important driver for MDBs’ participation in international organizations, it can also be argued that misuse by major shareholders corrupts them and works against their objectives (Vreeland, 2019).

Major shareholders can influence MDBs’ financial decisions. The preferences of the United States, Japan, Germany, France, and the United Kingdom are behind the increase in the yearly number of projects (Dreher et al., 2009) and in the amount of the supplemental loans (Kersting & Kilby, 2019a) that a country with temporary UN Security Council membership receives. There is a connection between the allocation of aid flows to developing countries and voting alignment with the United States and G7 in the UN General Assembly (Andersen et al., 2006). What is more, countries that have received more WB funds are those with a greater share of U.S. exports and U.S. bilateral aid (Fleck & Kilby, 2006). Similar considerations apply to RDBs (Kilby, 2006, 2011; Vivares, 2013).

MDB disbursements are less dependent on macroeconomic performance in recipients which vote with the United States at United Nations (Kilby, 2009, 2013a), or they accelerate when U.S.-friendly governments face an upcoming competitive election, which allows the WB to engage in “electioneering” (Kersting & Kilby, 2019b). Also, countries aligned with U.S. preferences are required to enact fewer domestic policy reforms, on fewer and softer issue areas (Clark & Dolan, 2021) and their accounting and audit quality is less important for aid allocation (Lamoreaux et al., 2015).

In addition, the U.S. policy of influence on and through the WB is in turn related to the dynamics of its domestic politics. The use of multilateral aid is greater when the government is divided (Kersting & Kilby, 2021), showing that the legislatures are a key player in establishing U.S. policy toward the Bank, and resort to different mechanisms, such as restricting or cutting funds, among others (Daugirdas, 2013).

Private sector interests and logics also influence, at different levels, the WB’s lending decisions, permeating the financial and political relations between the institution, its officials, and its member countries. The WB’s aid-recipient countries preferentially allocate contracts to domestic companies and to companies from donor countries (McLean, 2017). IDA and IBRD projects involving Fortune 500 companies based in the United States or Japan receive larger disbursements and better evaluations relative to their performance, compared to other firms (Malik & Stone, 2018); and companies receive International Finance Corporation (IFC) projects more frequently when their governments hold a seat on the IFC’s Board of Directors. Also, countries with a seat on the Board are more likely to attract projects that involve, as sponsor or recipient, another country that has also representation on the Board, which suggests that pairs of countries form alliances to benefit the private sector in both countries (Dreher et al., 2019).

The MDBs have a unique financial model: that of raising most of the resources needed for their operations from international capital markets. Although the relatively small amount of shareholder capital gives them a certain degree of operational autonomy from government principals and the increase of their financial capacity is attractive to borrowing countries, the need to secure sufficient resources in order to function as viable development lenders has multiple consequences: MDBs adapt their lending and financial policies in order to maintain access to international capital markets (Humphrey, 2016), and MDB management must be sensitive to the needs and perceptions of the bond-market private actors and credit rating agencies, which act as key gatekeepers to capital markets (Humphrey, 2017a). Thus, MDBs’ ability to pursue their objectives may be limited, or they may act in ways that not always align with their development mandate (financing the more profitable projects to retain AAA bond rating, for example).

Bureaucratic and Institutional Logic

Another dimension is related to institutional features, such as organizational structure, internal rules (formal and informal), bureaucratic dynamics and interests, and ideas supported by the Bank. With regard to the organizational structure and rules, serving on the Executive Board allows countries to access more or larger IBRD loans (Kaja & Werker, 2010); also, project preparation is shorter for temporary Executive Board members (Kilby, 2013b). In the IDA, the informal influence of Board directors has diminished over time, as staff developed a policy index which gained importance in determining lending allocations (Morrison, 2013). Complementarily, MDBs developed accountability mechanisms as a response to U.S. claims, but these had to be adapted to attend local characteristics (Park, 2017). Thus, the preferences of country directors (Weller & Yi-Chong, 2010) or bureaucratic staff agents (Winters & Streitfeld, 2018) matter.

The Bank’s shareholder composition has a major impact on loan prices and creates a trade-off for borrowers. If nonborrowing countries exert greater control, the Bank pays lower rates in the market and can fund special projects and debt relief, but projects tend to get away from the needs of developing countries; for this reason, borrowers prioritize the financing of RDBs in which they have greater decision-making capacity (Humphrey, 2014). However, sometimes governments do not contribute enough and MDBs must obtain funds in the global capital markets. This allows the Wall Street ethos to permeate institutions, which means prioritizing an early repayment of loans, offering loans only to the most creditworthy borrowers for projects expected to generate cash returns in the short term, opening up membership to nonborrowers, and building up reserves. Thus, the financial caution of sovereign lenders increases the dependence of the MDBs on the financial sector (Ben-Artzi, 2016; Humphrey, 2016, 2017b).

Loans are means of inducing and catalyzing diagnoses and prescriptions about development, policy, and reform. Even though the IMF has a lot of normative influence on the borrowing countries, the MDBs’ institutional culture and ideas are very relevant, because they act as a framework for these organizations and other agents’ actions, legitimizing and justifying them (Broome & Seabrooke, 2012).8 A well-known topic of discussion is the neoliberal orientation of the MDBs’ staff. The Washington Consensus was institutionalized by recipient governments and international financial organizations. It has expanded and mutated into the Post-Washington Consensus (PWC), but its core elements remain in place because of institutional inertia and shareholder support (Babb, 2013). Although in recent decades MDBs have promoted poverty reduction, gender equality, and environmental conservation, they continue to appear as a “conservative” bastion of market-friendly reforms (Dreher, Minasyan, & Nunnenkamp, 2015; Mendes Pereira, 2016; Strand, 2014). Additionally, the selective allocation of IDA grant flows promotes the persisting and traditional neoliberal agenda of reforms and imperatives in poor countries (Van Waeyenberge, 2009). Relativizing those arguments, there are claims that the Bank, to regain legitimacy among different publics, has adapted its conditionality, maintaining some conditions (privatization), but not others (liberalization) (Cormier & Manger, 2020).

Other examples of the promotion of policies and discourses—in this case, as a response to criticisms on the part of the international community—are the encouragement of Millennium and Sustainable Development Goals and the establishment of human rights procedures. MDBs are ambivalently engaged with the latter. Although they have expressed some support for human rights, especially social, economic, and cultural rights, it reflects the interest of the banks to promote rights that will in turn lead to greater economic growth and development, which is usually called the “economization of human rights” (Braaten, 2016).

Lastly, other discussion has focused on certain concepts and ideas within the MDBs discourse. Good governance indicators have been an element of soft power within the donor community, as donors explicitly refer to and use them (Diarra & Plane, 2014; Strand, 2014). In addition, the concept is used differently when the IDA and IBRD make lending decisions, so the idea that the Bank assists better-governed countries is not sufficient to explain the behavior of all its agencies (Winters, 2010). Another relevant concept in the World Bank rhetoric is that of the fragile state. It has been incorporated into development discussions in order to legitimize Western policy interventions and used by elites and governments in those countries to fit their own political agendas (Grimm et al., 2014; Nay, 2014). However, statements about the priority of the Bank’s work in states defined as fragile do not appear to have been realized in practice (Solomatin, 2018).

The Interest of the Borrower

The characteristics and interests of recipient governments as well as the domestic economic, political, and social context are important to understand why and how MDBs lend to developing countries. States are eligible for WB development lending depending on their graduation status, as defined by the Bank’s policy. Countries remain eligible to borrow from the IBRD until they are able to sustain long-term development without further recourse to Bank financing. Graduation from the IBRD is not an automatic consequence of reaching a certain income level, but rather is based on additional measures of institutional development and market access, and other variables that capture the country’s levels of economic development and vulnerability. Countries that are wealthier, more creditworthy, more institutionally developed, and less vulnerable to trade, financial, and other shocks are more likely to be graduated (Knack et al., 2012). In the case of the IDA, eligibility criteria include the absence of IBRD creditworthiness and gross national income (GNI) per capita below the IDA operational cutoff. Following several “reverse graduations,” in 1999 factor setting broadened to include an assessment of the country’s macroeconomic prospects, risk of debt distress, vulnerability to shocks, institutional constraints, and levels of poverty and social indicators. Analysts found that life expectancy, reduced poverty, urbanization, and institutional development have been predictors of graduation status (Dobronogov et al., 2020).

Albeit important, the economic conditions in borrowing countries are not the only aspect to consider in order to explain MDBs loans. Political and institutional variables are important as well. An analysis of the major Middle East and North Africa (MENA) recipients of World Bank (and IMF) program loans during the 1980s and 1990s found that pro-Western regimes that introduced Western-style democracy and adhered to U.S. interests in the region experienced capital inflows linked with that foreign policy and with domestic political events (Harrigan et al., 2006).

The WB’s decision-making process does not always imply alignment with the geopolitical interests of its main shareholders or with the actions of its “twin” (the IMF) (Tussie & Botzman, 1992). Kedar (2017, 2018, 2019) analyzed the WB’s relations with different governments in Chile and Argentina during the 1970s and 1980s (under dictatorial and democratic regimes) and found that the WB’s behavior reflected multiple factors, mechanisms, and justification, such as the need to be more responsive to Third World countries’ demands, the complex interactions with borrowing governments, the need to ensure its own stability and survival, its autonomist aspirations, and its support for liberalizing economic reforms.

For developing countries, the World Bank is one of the major sources of external finance, especially when access to private capital markets is reduced or obtaining it is onerous. On the demand side, bridging the financing gap has been an important factor in borrowing countries’ decisions to seek financial assistance from the Bank. Developing countries seem to request more IBRD and IDA lending when their debt service payments increase, and when their international reserve position declines, during both crisis and stable periods (Ratha, 2005). Notwithstanding, since the mid-1990s a number of emerging market governments have found themselves in strong financial positions, which have allowed them to seek alternative creditors. In this sense, demand for MDB loans also depends on the way borrowers weigh factors differently (such as the balance of power between borrowing and nonborrowing shareholders in the governance structure of each MDB, and the implications of this for loan cost and bureaucratic procedures) depending on economic circumstances (Humphrey & Michaelowa, 2013). For example, between 1980 and 2009, Latin American countries increasingly sought multilateral assistance from the Latin American Development Bank (former CAF) and IADB, while during crises WB lending tends to increase significantly and more strongly than the first. IADB lending also increases very strongly during crises, but remains at a relatively high level throughout (Humphrey & Michaelowa, 2010).

What Are the Effects of MDBs’ Loans?

The MDBs’ conditional loans have had diverse effects. Since the action of development finance institutions takes place at several levels and is related to a myriad of issues, the focus of this section will be on economic and sociopolitical outcomes and, due to the specificity of implementation, on the success of projects. The section is also mainly based on WB evidence, since the majority of academic literature that analyzes the effects of MDBs’ programs focuses on the largest development bank.

Economic Effects

Most literature on the economic effects of multilateral lending focuses on the impact of the IMF and WB combined. The evidence shows that the interaction of both organizations has a positive impact on GDP growth rate. Alone, WB programs boost growth while the IMF’s have a negative effect (Marchesi & Sirtori, 2011). Using the value of loans rather than the number of programs, studies indicate that the Bank’s lending stimulates growth in some cases, primarily by increasing public investment, while Fund lending is either neutral or detrimental to growth (Butkiewicz & Yanikkaya, 2005). IMF and WB reform programs have not accomplished sustainable growth in Middle East and North Africa, since they have had a negative impact on the economic growth and external indebtedness (Kingston, 2011). Reform programs in Jordan, Egypt, Tunisia, and Morocco were associated with spurts of economic growth but, apart from in Tunisia, these were not sustained. While unorthodox policies explain the Tunisian success, the periods of growth in the other three countries were often located in the nontradeable sector and were partly stimulated by external factors rather than the reform process (Harrigan & El-Said, 2010).

Apart from economic growth, other specific issues are considered in the literature. A number of WB programs have a positive effect on economic freedom, but the volume of financing actually reduces this (Boockmann & Dreher, 2003); also, MDBs’ programs are associated with deregulation (Kilby, 2005), market reforms (Cammack, 2016), and an increase of the quality of economic policy (although by a diminishing rate) (Smets & Knack, 2016). About the catalytic role of the World Bank (and the IMF) policy-based lending in helping developing countries to attract capital from private flows or bilateral aid, analyses show that although this role remains potentially important, its effect is nuanced and complex, but overall it is weak (Bird & Rowlands, 2000).9 With regard to the financial sector, WB loans aimed to support its development from 1992 to 2003, allowing borrowing countries to perform better than nonborrowers by experiencing more rapid growth on standard indicators of banking sector development (Cull & Effron, 2008). In Kazakhstan, Azerbaijan, Russia, and Turkmenistan, cointegration between WB lending and an abundance of natural resources fostered financial development during the period from 1992 to 2017. Nevertheless, excessive borrowing and faulty management of loans can negatively affect financial development (Gokmenoglu & Rustamov, 2019).

Sociopolitical Effects

MDBs’ lending has an impact on social relations and the political dynamics of borrowers as well. The WB programs and reforms impact on several aspects of the recipient societies: they undermine collective labor rights (Blanton et al., 2015), increase rates of forest loss (Shandra et al., 2011) and struggle to sustain their short-term improvements on health and education in the long run (Bhaumik, 2005). Indicators related to healthcare and education expenditure in four African countries indicate that adjustment facility programs had a negative impact on development (Kingston, 2011). In some cases, the same programs included conditions that undermine development achievements. For example, improvements in maternal mortality resulting from WB reproductive health investment were undermined by the structural adjustments promoted in the health area (Coburn et al., 2017); also, World Bank structural adjustment lending in the forestry and agricultural sectors was associated with higher rates of forest loss, while the lending in the environmental sector generated lower rates of forest loss (Shandra et al., 2016).

Development lending also influences the behavior of governments in multilateral institutions; for instance, countries that receive larger loans are reported to vote more often in line with G7 countries at the UN General Assembly (Dreher & Sturm, 2012). There is a mixed effect on democratization. While in some cases programs negatively affect the social bases of development, undermining social democracy (Raman, 2009), or increase the likelihood of major government crises (Dreher & Gassebner, 2012), certain types of aid (with institutional reform-related conditionalities that limit fungibility) strengthen domestic accountability mechanisms (Birchler et al., 2016). For the period 1981–2000, WB structural adjustment agreement negatively affected governments’ respect for human rights, worsening citizens’ physical integrity rights violations (Abouharb & Cingranelli, 2006). Borrowing states’ characteristics also can affect lending effectiveness. Aid impact is mediated by the borrower’s type of regime; more specifically, conditional aid’s efficacy depends on the level of democracy in the recipient countries (Montinola, 2010), and it is less effective when the political ideologies of the donor and the recipient differ (Dreher, Minasyan, & Nunnenkamp, 2015).

Finally, it is necessary to consider project success and results. Project preparation and implementation may be considered a bargaining game between the aid agency and recipient country (Swedlund, 2017), involving political dynamics. Although officially actions are led by the recipient countries, WB staff has substantial, but incomplete, authority over aid projects. In times of decentralization, the presence of Country Directors is associated with substantive differences in project performance. But while Country Directors are associated with higher levels of project success when present during the preparation phase of projects, during the implementation phase their presence has more mixed associations (Honig, 2020).

The characteristics of the borrowing states matter too, as successful project implementation is related to the governance capacity of recipient countries (Buntaine & Parks, 2013). Preparation has a significant and positive impact on project performance, which increases with economic vulnerability (Kilby, 2015). According to WB project supervisors, design and monitoring are the most critical conditions related to project success (Ika et al., 2012). Macro–micro interactions impact on aid effectiveness as well. Country-level macro measures aimed at improving the quality of policies and institutions are strongly correlated with project outcomes (consistent with the view that country-level performance is important), but the success of individual development projects varies within countries. A set of project-level micro variables, including project size and length, preparation, and supervision, explains some of this within-country variation in project outcomes (Denizer et al., 2013).

Table 1, presented below, summarizes the main characteristics of the IFIs analyzed in this article.

Table 1. Comparison of IFIs Analyzed in this Article

IMF

IBRD

IDA

IADB

CAF***

Purpose

The IMF fosters global monetary cooperation, which comprises the stability of exchange rates, the promotion of international payment systems, and establishing global reserves of currencies. Also promotes financial stability.

The IBRD works with the public sector in borrowing countries (sovereigns and subsovereign entities) in every major area of development, to promote that development and reduce poverty. The Bank promotes private foreign investment and, when private capital is not available, supplements it with its own lending.

The IDA focuses on the world’s poorest countries, helping them to pave the way toward economic growth, higher incomes, and better living conditions. It is one of the largest sources of assistance for the world’s 74 poorest countries.

The IADB offers solutions to its regional developing member countries in Latin America and the Caribbean by financing economic and social development through lending and grants to public and private entities.

The CAF promotes sustainable development and regional integration in Latin America by providing multiple financial services to public and private sector clients in its shareholder countries.

Membership

190 countries

189 countries

173 countries

48 countries 26 regional borrowing 22 nonregional and nonborrowing

19 countries 17 regional 2 nonregional (Spain and Portugal)

Largest five shareholders

United States

United States

United States

United States

Peru

Japan

Japan

Japan

Argentina

Venezuela

China

China

UK

Brazil

Colombia

Germany

Germany

Germany

Mexico

Argentina

France/UK

France/UK

France

Japan

Brazil

Own resources **

678 billion

270 billion

168 billion*

170 billion

9.3 billion

Liabilities

n/a

237 billion

19.6 billion

106.2 billion

29.5 billion

Outstanding loans

133 billion

202 billion

161 billion

104.7 billion

28.5 billion

2020 lending approved

165 billion

27.9 billion

30.3 billion

14.2 billion

14.1 billion

Decision-making

G7 countries account for 41.28% of voting power and among them the United States is the majority shareholder with 16.51% and has veto power.

G7 countries account for 40.46% of voting power and, among them, the United States is the majority shareholder at 15.88% and has veto power.

Its organizational structure is similar to that of the IBRD. G7 countries account for 39.18% of voting power, and among them the United States is the major shareholder with 9.95%.

The United States is the major shareholder, with 30% of total votes, followed by Argentina and Brazil, each with 11.35%. Regional members have slightly over 50% of the votes.

The CAF consist of 17 member countries from Latin America and the Caribbean, plus Spain and Portugal. Regional members have more than 95% of the votes.

Scope of action

The IMF acts in three ways: It conducts national, regional, and global economic surveillance; it offers technical assistance to member countries, and provides short-term lending to address balance-of-payments crises.

The IBRD provides a wide array of financial products and technical assistance to middle-income and creditworthy poorer countries. It works by providing loans, guarantees, risk management products, and advisory services to members, as well as by coordinating responses to regional and global challenges.

The IDA provides credits (loans at zero or low interest, known as concessional lending) and grants to the poorest countries. It is a multi-issue institution, supporting a range of development activities such as primary education, basic health services, provision of clean water and sanitation, agriculture, business climate improvements, improving infrastructure, and institutional reforms.

The IADB provides financial and technical support for countries in Latin America and the Caribbean in order to reduce poverty and inequality and improve health, education, and infrastructure. It has different lending categories based on the development purpose, eligibility, and disbursement requirements of the loan, as well as the criteria for determining the size of the loan amounts and the financial terms. Each lending category includes different types of lending instruments and approaches.

The CAF promotes a sustainable development model through credit, nonrefundable resources, and support for technical and financial structuring of public- and private-sector projects in Latin America. The range of projects that it can finance is broad, and includes infrastructure programs related to roads, transport, telecommunications, energy generation and transmission, water, and environmental sanitation, as well as those that promote border development and physical integration between shareholder countries.

* Funds are drawn largely from subscriptions and contributions from its high-income member countries. Additional funds come from WB group transfers and from borrowers’ repayments.

** Refers to quotas (IMF) or subscribed capital (other IFIs). All figures are in US dollars.

*** Although the bank is currently named the Development Bank of Latin America, it is most commonly referred as CAF because of its previous name, Corporación Andina de Fomento.

Source: Own elaboration based on official data. Lending and capital data correspond to 2020.

A Way Ahead: New Initiatives in Development Lending

The rise of the emerging powers, particularly China, in recent decades at the geopolitical and economic levels has led to a shift in the global power balance (Wang, 2019). The growing importance of these powers was expressed in the field of multilateral development banks with the creation of two new institutions, the New Development Bank (NDB), formed by the BRICS (Brazil, Russia, India, China, and South Africa), and the Asian Infrastructure Investment Bank (AIIB), the most prominent Chinese-led global governance initiative. The launch of both organizations is considered emblematic of the rising strength of these countries. Similar to the World Bank in its early days, both are infrastructure-oriented and have declared their intention to fill the large gap in infrastructure investment and promoting sustainable development in developing countries, with a South–South cooperation focus (Griffith-Jones et al., 2016). Also, China and other rising powers seek to gain influence outside of traditional lending organizations through the creation of new financing arrangements (Reisen, 2015; Strand et al., 2016).

Regarding main novelties, like China, which follows a “non-interference principle” in its aid program (Chow, 2016), the NDB and the AIIB rejects the use of development lending as leverage to promote social and political change in borrowing countries (Wang, 2017). Also, the AIIB is pursuing an innovative, environmentally and socially-friendly, but also investment-worthy framework on sustainable infrastructure financing, which includes an original integration of social and indigenous agendas with the promotion of large-scale public-private funds for green and climate finance (Vazquez & Chin, 2019). Regarding their internal governance structures, the NDB is committed to a principle of equality across its core membership; also, AIIB decision-making primarily relies on forging and reaching a consensus, complemented by majority-voting rules and the power of veto as the last resort (which China retains, but promised will never abuse) (Cooper, 2017; He, 2016). Finally, the choice of nonresident Executive Boards and the establishment of their headquarters in a borrowing country, as well as more limited and flexible administrative structures, all features look for accelerate and simplify the borrowing process (Molinari & Patrucchi, 2020).

Acknowledgments

The authors would like to thank the two anonymous reviewers for their valuable comments. The usual caveats apply.

Further Reading

  • Bird, G. (2016). The International Monetary Fund: Distinguishing reality from rhetoric. Edward Elgar.
  • Chwieroth, J. M. (2010). Capital ideas. Princeton University Press.
  • Delikanli, I. U., Dimitrov, T., & Agolli, R. (2018). Multilateral development banks: Governance and finance. Springer.
  • Lessambo, F. I. (2015). International financial institutions and their challenges: A global guide for future methods. Springer.
  • Naciri, A. (2018). The governance structures of the Bretton Woods Financial Institutions: A case of “beggar-thy-neighbour.” Springer.
  • Park, S., & Vetterlein, A. (Eds.). (2010). Owning development: Creating policy norms in the IMF and the World Bank. Cambridge University Press.
  • Strange, S. (1996). The retreat of the state: The diffusion of power in the world economy. Cambridge University Press.

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Notes

  • 1. In 1930 the Bank for International Settlements was established, whose members are central banks and not states.

  • 2. The General and New Arrangements to Borrow (GAB and NAB), and the recent Bilateral Borrowing Arrangements (BBA).

  • 3. It refers to a group of countries that consists of the United States, Japan, Germany, United Kingdom, France, Italy and Canada, whose political, economic and military power was remarkable during the second postwar period. Although they remain relevant global powers, in the last two decades these countries have faced the ascent of many emerging powers, notably, China.

  • 4. The large Stand By Arrangement signed with Argentina in 2018 was one of the first to include the social spending target as a performance criteria, and it included an unprecedented countercyclical adjustment. In the words of the then economy minister, Nicolás Dujovne “Argentina [between 2018 and 2019] is making a fiscal adjustment of almost 3 points of GDP. The deficit in the current account of the balance of payments is going to fall from 5 to 1.5 of GDP, [the] external one [will be adjusted] almost 3.5 points. The exchange rate showed an adjustment of almost 40 percentage points. In Argentina there has never been an adjustment of this magnitude without the Government falling” (Infobae, 2018, November 14th. Our translation and emphasis). It appears interesting to research in the future whether this social spending cushion contributes to avoid massive social outbreaks in the face of very severe fiscal adjustments.

  • 5. These MDBs stand out from other regional and subregional development banks in terms of their size: All have subscribed capital greater than USD $50 billion, a staff structure greater than 1,000 employees (World Bank being the largest with more than 11,000 members), and an outstanding loan portfolio ranging from USD $15 billion (IsDB) to more than USD $300 billion (taking together the IBRD and IDA, the main financial arms of the World Bank). There are some relevant MDBs that lend mainly to the private sector (i.e. European Bank for Reconstruction and Development) and other subregional banks which resemble the regional leader in its function (i.e. the South American Development Bank) (Engen & Prizzon, 2018).

  • 6. The WB Group is comprised also of the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID).

  • 7. In addition, specific activities can be funded by donors through trust funds managed by the organization (World Bank, 2011).

  • 8. A clear example of the WB conceived as a discourse-producing agency can be seen in its slogan, “Knowledge bank” (Enns, 2015), which portrays it as a producer of data and knowledge which guides and shapes its own perceptions and actions, as well as its members’, serving as a “frame” for policy analyses and recommendations.

  • 9. The role or effect of multilateral financial organizations’ policy-based lending in attracting capital from other sources to developing countries.