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International Financial Institutions (IFIs) and particularly the relationship between the IFIs and the United States.
Scott Morris is a senior fellow at the Center for Global Development and director of the US Development Policy Initiative. This initiative seeks to broaden the US government’s approach to development, including the full range of investment, trade, and technology policies, while also strengthening existing foreign assistance tools. Additionally, he works on issues related to the International Financial Institutions (IFIs) and particularly the relationship between the IFIs and the United States. Morris served as deputy assistant secretary for development finance and debt at the US Treasury Department during the first term of the Obama Administration. In that capacity, he led US engagement with the World Bank, Inter-American Development Bank, African Development Bank, EBRD, and Asian Development Bank. He also represented the US government in the G-20’s Development Working Group and was the Treasury’s “+1” on the board of the Millennium Challenge Corporation. During his time at Treasury, Morris led negotiations for four general capital increases at the multilateral development banks and replenishments of the International Development Association (IDA), Asian Development Fund, and African Development Fund.
Before his post at the US Treasury, Morris was a senior staff member on the Financial Services Committee in the US House of Representatives, where he was responsible for the Committee’s international policy issues, including the Foreign Investment and National Security Act of 2007 (the landmark reform of the CFIUS process), as well multiple reauthorizations of the US Export-Import Bank charter and approval of a $108 billion financing agreement for the International Monetary Fund in 2009. Previously, Morris was a vice president at the Committee for Economic Development in Washington, DC.
As donors gather next week in Rome to pledge funds to the International Fund for Agriculture Development (IFAD), they may be wondering where the United States is. During a recent debate on the floor of the US House of Representatives, Congresswoman Maxine Waters raised the possibility that the Trump administration may not make a pledge to IFAD. If true, this would represent the loss of the fund’s largest donor and could jeopardize funding from other donors this year. Given the generally high marks this independent fund earns for development effectiveness, the uncertainty around a US pledge is troubling.
In this “America First” moment, it’s worth asking when it comes to IFAD, what’s in it for the United States and what will be lost if the United States drops out?
IFAD is the only multilateral institution dedicated exclusively to eradicating poverty and hunger in rural areas of developing countries. It was established in 1977 as one of the major outcomes of the 1974 World Food Conference, which was organized in response to the food crises of the early 1970s. To date it has granted or lent about US$12.9 billion for over 1,000 agriculture and rural development programs in 124 different countries.
The need for this support is clear. According to the 2017 State of Food Security and Nutrition in the World report, for the first time since 2003 the number of chronically undernourished people in the world has increased, up to 815 million from 777 million in 2015. And the Food and Agriculture Organization estimates that keeping pace with population growth in the developing world will require a 50 percent increase in the production of food and other agricultural products between 2012 and mid-century.
Because most of IFAD’s financing is provided at highly concessional rates that low-income countries can afford, its capital must be periodically replenished in order to prevent a drop in lending capacity. Next week, the fund’s 176 members will wrap up discussions on the parameters for the eleventh such replenishment and the fund’s donors will make their pledges.
Reflecting its economic status and long-standing leadership role in the multilateral system, the United States has traditionally been the largest single contributor to IFAD replenishments. Its US$90 million pledge to the Tenth Replenishment of IFAD’s resources (2016-2018) represented 8.7 percent of the total. While significant, this share is much smaller than is the case for other international funding bodies, such as the Global Fund (33 percent) or the World Bank’s International Development Association (17 percent). Moreover, this US$90 million pledge helps leverage financing that enables IFAD to support a $7 billion program of work, representing a remarkable “leverage” ratio of almost 80 to 1.
IFAD has had a practice of complementing US bilateral assistance programs, thus magnifying the impact of USAID’s work. For example, in northern Ghana, USAID and IFAD have worked together to improve the production and distribution of maize, soya, and sorghum by smallholder farmers. IFAD, USAID, and the US Department of Agriculture have also worked together on agricultural research and pest eradication, including the highly successful eradication of the screwworm in North Africa.
Whatever reason US officials might decide to withhold a pledge from IFAD, it can’t be due to the fund’s effectiveness. In a joint CGD-Brookings assessment, IFAD outscored US bilateral assistance on all dimensions. And another recent independent assessment noted that IFAD has sound fiduciary policies and practices and is fully committed to a results agenda.
When it comes to a US pledge, the good news may be that congressional support for the fund has been very strong on a bipartisan basis over many years. Even as Congress routinely cut Bush and Obama administration requests for funding to the World Bank and other regional development banks, congressional funding for IFAD was routinely protected. More recently, the US government’s global hunger and food security approach embodied in the bipartisan Global Food Security Act (GFSA) of 2016 closely mirrors the fund’s mandate and strategic priorities. These forces could ultimately prevail upon a reluctant Trump administration to come back to the pledging table sometime this year.
But as all of IFAD’s donors meet next week, it will be important for IFAD’s allies in Congress and elsewhere to make clear that US support for the fund remains strong and any lack of pledge at the moment is a temporary problem.
As the World Bank makes a case to its shareholders for a capital increase this year, they are grappling with an uncomfortable truth: one of their biggest borrowers, China, happens to hold the world’s largest foreign exchange reserves, is one of the largest recipients of foreign direct investment, enjoys some of the best borrowing terms of any sovereign borrower, and is itself the world’s largest sovereign lender.
The World Bank was created to support countries that could not access capital on reasonable terms to meet their development needs. That doesn’t seem to describe China today, a point that US officials are quick to point out in the current discussions around the World Bank’s own capital needs.
So, is there actually a case for China’s continued borrowing? And why in fact does China continue to borrow?
On the latter, it’s clear enough that China does not borrow to meet a financing need, or even to exploit a financial subsidy. Annual bank lending to China of about $2 billion means almost literally nothing in an $11 trillion economy. And with China’s favorable borrowing terms in bond markets, the implicit subsidy it receives on IBRD loans is just 50 basis points or so. These two facts combine to suggest that Chinese officials care very little about the bank’s lending as lending per se.
Beijing officials have often characterized their borrowing as a useful way to achieve a number of aims: project-level standards and disciplines that help improve operations at the local and provincial levels, particularly in western China where capacity remains low; incentives to boost domestic investment on behalf of climate mitigation; and more generally, access to expertise across a range of sectors in support of development goals. In each of these arguments, officials make a particular case about the effectiveness of lending relative to other modes of engagement, such as technical assistance or bank studies.
But should the case that China makes for itself carry the day with the rest of the World Bank’s shareholders? On balance, I think so and generally see four reasons to continue the bank’s China lending:
The bank’s founding mission, defined around meeting capital needs at the national level, has evolved in recent years, such that countries that have ready access to capital markets also demonstrate the value of using World Bank loans to incentivize and prioritize development objectives. This holds in two important ways. First, it helps address the paradox of today’s development landscape, which is partly defined by large economies with large poor populations. When these populations are regionally or locally concentrated, bank loans can help national governments prioritize engagement in these areas. Second, there is a global “public goods” agenda, with climate change mitigation at the forefront, that requires action from large economies. Bank loans similarly help to incentivize investments in these areas by offering subsidies (modest in China’s case) for public goods-related activities.
China’s borrowing is a useful “market” signal when it comes to assessing the quality of World Bank assistance. Unlike the bank’s poorest borrowers, for whom bank loans are a critical source of public financing, China will only continue to borrow to the degree it sees a net benefit to the loan package. This likely entails some weighing of non-financial costs (e.g., the degree to which bank projects are cumbersome) and benefits (the degree to which the bank delivers on the elements described earlier). Because China can afford to have a take-it-or-leave-it attitude, the country’s borrowing gives us a clearer picture of the quality of effort provided by the bank over time. It’s good to know that China sees value now, and it will also be good to know if they render a different judgement in the future.
World Bank lending may not deliver a significant financial benefit to China, but it does significantly benefit the bank’s balance sheet by virtue of China’s creditworthiness. Put simply, the bank could not simply swap out $2 billion a year to China for El Salvador and Vietnam. There are legitimate questions about the fair allocation of scarce World Bank capital, but it is not the case that one dollar less of China lending is one dollar more available to other countries.
Finally, there can be no “China” graduation policy. China is situated among 56 upper-middle-income borrowing countries, and any policy aimed at ending lending to China would have to do the same for many of these countries. This could be problematic in individual cases and in toto. Does the United States also feel strongly that Mexico should no longer be able to borrow from the World Bank? Turkey? What about the 30 other borrowing countries at or above China’s level of per capita income?
Graduating China from World Bank assistance may be misguided, but asking more from China and other higher-income borrowers is not. CGD’s High-Level Panel on the Future of Multilateral Development Banking last year identified differentiated loan pricing as a useful way to seek more from these borrowers in return for the benefits they derive from bank engagement. Their role as donors to the bank should also be on the table, whether as contributors to the International Development Association (IDA) or through other mechanisms in support of public goods. China has already stepped up considerably as an IDA donor and would be smart to continue this trajectory. Defining a new relationship with the bank as leading shareholder, client, and donor could increase China’s influence in the institution in ways that are not wholly positive, but for the institution itself, such a role would better reflect the needs of today’s global agenda.
Happy New Year, and welcome to 2018 from all of us at CGD.
Here at CGD, we’re always working on new ideas to stay on top of the rapidly changing global development landscape. Whether it’s examining new technologies with the potential to alleviate poverty, presenting innovative ways to finance global health, assessing changing leadership at international institutions, or working to maximize results in resource-constrained environments, CGD’s experts are at the forefront of practical policy solutions to reduce global poverty and inequality.
Watch our video to hear from our experts directly, and get an in-depth look below at their thoughts on the 2018 global development landscape:
The role of international cooperation
“We’re in a difficult time for development policy. People feel as if we’re in competition with the developing world, and I think we have to get back to recognizing that we have shared problems that we need to solve together. The premise of international development cooperation—now rightly enshrined in the Sustainable Development Goals—is that we are in this together: we all benefit from shared prosperity, openness, trade, security, values, rights, and justice. We are in danger of seeing the world as zero sum—in which improvements in some parts of the world are wrongly believed to be at the expense of success elsewhere. If we allow this idea to take root, it will undermine support for development cooperation, and take us in directions that erode global cooperation and the institutions that protect and sustain our shared security and prosperity.”
The effect of transitioning away from aid: asking the right questions
“I think 2018 is going to have to be about countries transitioning away from aid, and as a result it’s going to have to be about how we invest limited resources to get the best return for that investment. What happens to social spending commitments towards global health priority areas such as vaccinations and infectious diseases, as Ministries of Finance are increasingly asked to allocate their own domestic resources to replace diminishing donor funds? How do national health insurance funds procure pharmaceutical products and other health commodities as LMICs leave purchasing clubs such as Gavi and GFATM whilst having to deal with the growing burden of chronic diseases such as diabetes and cancer? How can technological and organisational innovation address the gap left by departing global purchasing arrangements?
What are the role and responsibilities of norm setting agencies such as the WHO in shaping resource allocation at national level as countries commit to and implement universal coverage for their populations? When are aspirational targets as the ones set through standard treatment guidelines, disease specific norms or the Essential Medicines List, justified and when do they distort local spending priorities and aggravate inequalities?”
New leadership, limited funding: an opportunity for global health aid
“In 2018, I’m looking forward to seeing economists more deeply embedded in all things global health. First, Peter Sands takes the helm as new executive director at the Global Fund to Fight AIDS, Tuberculosis and Malaria where the focus needs to be value for money—more impact, more rigorously measured, for the same or less money. It’s not just the right thing to do, it’s also a requirement for a portion of future DFID funding. To get this done, better economics should be deployed to inform resource allocation within programs, implement rigorous performance verification and evaluation approaches, and select most cost-effective diagnostics, drugs, and devices for purchase.
Second, at the World Health Organization (WHO), newly elected Dr. Tedros is finalizing his General Program of Work, a 2019-2023 plan that governs the rest of his tenure as Director-General. Faced with many demands and conflicting priorities from its member countries, WHO leadership could benefit from a chief economist (more on this here and here). The goal? To help prioritize demands amid scarce funding, to promote value for money in all policies, and to make the critical link with ministries of finance.
Third, with US tax reform passed, global health aid—like the rest of discretionary spending in the US budget—may face cuts, despite bipartisan support. In the UK, there’s also an uncertain outlook. It’s a clear case of ‘hope for the best, plan for the worst.’ And that’s where the dismal science can contribute: planning for these uncertainties and contingencies, and maybe finding some opportunities for efficiencies along the way. Look to recent work on aid transitions, priority-setting, domestic resource mobilization, innovative financing, value for money, fiscal policies for health, financing global public goods, and our forthcoming work on rationalizing future global health procurement should provide some fodder for policymakers to consider.”
“In 2018, I’m very much looking forward to continuing to explore China’s emergence as a leading development actor. Increasingly, this will mean defining a leading role on international policy commensurate with China's role as a leading development financier globally. In settings like Davos and institutions like the World Bank and the IMF, Chinese officials will inevitably be more prominent in 2018 and will just as inevitably come under increasing pressure to align Chinese policy on issues like sustainable lending with international norms. All of this will likely occur against a backdrop of US retrenchment in these multilateral fora.”
“I’m really excited about the relationship between technology and development, and to begin to examine how we can master the challenges that come with integrating a set of powerful new technologies and ensuring that they deliver the best options for poor people everywhere. Technological innovation has been a driving force of development and this continues to be the case. The current revolution in digital technology, big data, robotics, and artificial intelligence holds enormous promise to deliver development services more effectively and efficiently. However, these forces will need to be harnessed to ensure that the benefits flow to all segments of society in the developing world and the ‘losers’ from this transition are supported in ways that are economically, socially, and politically sustainable. This is a fertile and urgent area for conceptual and empirical research to underpin better policymaking by developing country leaders and the international community.”
“In 2018, I’m excited about expanding our research on the policies that will most effectively help refugees and migrants integrate into their host communities. At a challenging time for migrants and refugees, we are focused on analyzing and generating solutions that can simultaneously advance outcomes for refugees, migrants, and host communities. One of our main projects will highlight policies and programs that benefit sending and receiving communities, as well as emerging innovations such as the Global Skill Partnership. Building on our work on refugee compacts, we'll expand our work on how to achieve impact with new financing mechanisms that support developing countries, which host 86 percent of the world's refugees, to deliver services to refugees and citizens. A key part of this will be research on how to increase refugees' access to labor markets and more deeply engage the private sector, so refugees can become self-reliant by finding jobs and starting businesses—and spurring local markets in the process.
Latin America’s elections: choosing the right leadership to restore peace and prosperity
“In 2018, we will witness a huge cycle of presidential elections in Latin America. My big hope for the year is that the citizenship chooses the right leadership to be able to face the upcoming challenges. The recent elections in Chile (December) and Honduras (November) will be followed by six Presidential elections in 2018: Colombia, Mexico, Brazil, Costa Rica, Paraguay and, potentially, Venezuela. This highly charged electoral cycle comes at a time when populations’ discontent with the results of democracy is on the rise as reported by the reputable poll Latinobarometro. This change in attitude follows the significant deterioration in Latin America’s economic and institutional quality indicators in recent years, reflecting both the end of the period of super high prices of commodities exported by the region and the outburst of corruption and crime in many countries. In this environment, the risk of electing populist (notably in Mexico) or authoritarian leaders (notably in Brazil) is high. Populism and authoritarianism are not strange to Latin American history and their disastrous results on economic and social prosperity are extensively documented (with Venezuela’s recent experience being the latest example). The incoming elections will test whether Latin Americans can avoid repeating the painful mistakes of the past and will choose governments able and willing to put in place the needed reforms to restore economic growth and sustainably enforce the rule of law.”
“In 2018, what I would like to see is the gender gap in financial services reduced. The gender gap in financial services is stuck at a 7 percent gap globally and a 9 percent gap in developing economies. According to the latest data, while the number of bank account holders has increased globally between 2011 and 2014, the gender gap has not shrunk. In 2018 we can do better. So far, a lot more attention has been paid to particular constraints women face in accessing financial services, than to what women actually want from financial products. Focusing on women potential clients as a distinct market segment is a first step. Second, in addition to “know your customer requirements,” the industry should have “know your bank standards” as well, and examine potential gender biases, explicit and implicit, in the delivery of financial services. Banks should examine and correct internal gender biases. Encouraging signs include the commitment of development agencies (including an 8-agency gender data partnership coordinated by Data2X and GBA) and some banks to invest in data, both supply and demand-side, and in testing innovative financial products and delivery systems to increase women’s access to financial services (including experimental evaluation work we at CGD and partners are completing this year). These and other partnerships should help shrink the gap in the short term, especially if large private sector banks globally also act.”
What will you remember about 2017? The growing crisis of displacement? The US pulling out of the Paris agreement and reinstating the global gag rule on family planning? Or that other countries reaffirmed their commitment to the Paris agreement, that Canada launched a feminist international assistance policy, that Saudi Arabia finally let women drive?
CGD experts have offered analysis and ideas all year, but now it's time to look forward.
What's going to happen in the world of development in 2018? Will we finally understand how to deal equitably with refugees and migrants? Or how technological progress can work for developing countries? Or what the impact of year two of the Trump Administration will be?
Today’s podcast, our final episode of 2017, raises these questions and many more as a multitude of CGD scholars share their insights and hopes for the year ahead. You can preview their responses in the video below.
Thanks for listening. Join us again next year for more episodes of the CGD Podcast.
Earlier this month the US Treasury’s top international official announced at a congressional hearing that he would like to see the Global Agriculture and Food Security Program (GAFSP) “wound down.” Not only would the United States no longer make contributions to the fund, but Treasury Undersecretary David Malpass indicated that he wants other GAFSP donors to end their contributions as well, arguing that the fund is duplicative and donors could channel their support through other institutions and funding sources.
This view, at first glance, is not crazy given the proliferation of development trust funds in recent decades, many of which operate with little scrutiny or evidence of impact. But scratching beneath GAFSP’s surface, there are good reasons to be concerned about the potential loss of this particular trust fund. And for those very reasons, it seems unlikely that the other GAFSP donors will be so quick to follow the US lead.
Before examining GAFSP’s merits, it’s worth understanding the history of this relatively young fund. Ten years ago, food prices in developing countries soared to unprecedented levels, resulting in riots that threatened governments as well as social stability around the world. Massive public protests erupted in countries ranging from Haiti to Egypt to Senegal. World Bank President Robert Zoellick predicted at the time that surging food costs could mean "seven lost years" in the fight against worldwide poverty.
Admirably, the international community stepped up to address the challenge. In April 2008, the World Bank and the International Monetary Fund announced a series of measures aimed at mitigating the crisis, including increased loans to African farmers and emergency monetary aid to badly affected areas. UN Secretary-General Ban Ki-moon established a High-Level Task Force on the Global Food Security Crisis that developed a Comprehensive Framework for Action to enhance global food security efforts.
And at the 2009 G8 Summit in L’Aquila, Italy, leaders endorsed a Global Food Security Initiative to help fill agricultural financing gaps in the poorest countries in the world. GAFSP was a core element of this initiative. The United States government was the leading architect of the GAFSP trust fund, and in full disclosure, I played a role in creating the fund as a US Treasury official at the time.
So, even if GAFSP’s historical context is compelling, why does it continue to hold merit today? I see at least three reasons.
1. There continues to be large unmet need for financing agriculture investments in poor countries.
According to the 2017 State of Food Security and Nutrition in the World report, for the first time since 2003 the number of chronically undernourished people in the world has increased, up to 815 million from 777 million in 2015. Moreover, the global population is projected to grow from some 7.3 billion to almost 9.8 billion by 2050, with most of that increase coming in the developing regions. In low-income countries, the population may double to 1.4 billion. According to the Food and Agriculture Organization, feeding humanity will require a 50 percent increase in the production of food and other agricultural products between 2012 and mid-century.
Donor financing does not appear to have kept pace with the need. OECD statistics show that the share of bilateral official development assistance devoted to agriculture production was the same in 2015 (4.3 percent) as it was in 2008. The World Bank, the largest single source of development finance, approved over US$5 billion in agriculture and rural development financing last fiscal year, but this is the lowest level since 2011 and well below the peak of US$8.3 billion in 2009. The GAFSP remains the only multilateral vehicle that targets funding for agriculture and rural development in the poorest countries.
Rather than provide money to any country that demonstrates a need, a steering committee agrees to funds proposals that are chosen for rigorous measures of quality through a competitive process; in the most recent round for selecting public sector projects, just seven of the over twenty proposals were funded. To enhance the selection process, a panel of (unpaid) independent technical experts recommends which proposals should be funded. And, unlike traditional multilateral mechanisms, the GAFSP steering committee is composed of representatives of donors, recipient countries, implementing agencies, and civil society. Monitoring and evaluation of projects is at the forefront of project design and funding decisions, and randomized control trials (RCTs) are incorporated into many project designs.
3. GAFSP is delivering results.
Initial findings from the RCTs of early GAFPS projects are starting to come in and they are very encouraging. For example, in the Integrated Agricultural Productivity Project in Bangladesh, an RCT found that during 2014–2016 income levels of project households cultivating crops and fisheries increased by 15 percent and 37 percent, respectively, compared to non-project household. Similarly, in Rwanda, an RCT reported an 11 percent gain in the value of harvest and a 28 percent gain in the value of sales, respectively, during one season (September to February), and in target irrigated areas, productivity increased by 423 percent. In Cambodia, a government-led, nonexperimental impact evaluation found an 85 percent income gain.
By focusing on agriculture investments, the GAFSP also plays a major role in increasing median incomes in low-income countries by pulling people out of poverty. Investments in agriculture are estimated to be two to four times more effective in reducing poverty than growth generated from other sectors. Not only does improving agricultural productivity make more food available in rural communities, where 70 percent of the world’s poor live, it also provides a sustainable source of income for people with limited opportunity.
So what’s next for GAFSP? The Trump administration has already made clear that it will no longer be contributing to the multi-donor trust fund created by its predecessor. Unfortunately, the administration isn’t satisfied to leave it at that and is now calling on other GAFSP donors to end their contributions to the fund. If GAFSP were an abject failure, such a stance might be met favorably by the other donors, marking the last gasp for GAFSP. But the fund counts among its top donors actors who place a high value on evidence-driven investments, including the Bill & Melinda Gates Foundation and the Canadian, Dutch, German, and British governments. I doubt very much that these donors will be so quick to walk away from such an unambiguous success.
And with time, perhaps the current administration will reconsider its misguided stance on this innovative fund. One prod in this direction just might be a multilateral aid review, which appears to be gaining momentum in the Senate and would introduce an evidence-driven process for evaluating the relative value of the various contributions the United States makes to multilateral institutions.
When foreign policy types refer to soft power, whether deployed by the United States, China, or Germany, it’s not always clear what they’re talking about. But one form of soft power is concrete enough. That is, it’s literally concrete. And by a measure of bricks and mortar, it’s clear that the United States is rapidly losing the soft power game to China. In fact, the contrast between the two countries on display this week in Washington is startling.
China is using the occasion of the annual meetings of the IMF and World Bank to showcase its multi-trillion-dollar program to pave Asia, the Belt and Road Initiative (BRI), featuring a high-level panel with the American head of the World Bank and the Chinese head of the Asian Infrastructure Investment Bank (AIIB). This panel will examine, no doubt from a favorable perspective, the potential of BRI’s infrastructure agenda to spur greater levels of poverty reduction throughout Asia and beyond. (At CGD we are also hosting an event this week on the BRI, looking at how to ensure it can be a sustainable success for developing countries.)
A few days later, the United States will deploy the president’s daughter to champion a $300 million multi-donor trust fund focused on women’s entrepreneurship globally. A worthy issue certainly, but the contrast of millions and trillions alone is telling.
Far more telling though, are press comments from a senior Treasury official, which appear to be aimed at squashing any ambition at the World Bank in the years ahead. On the question of the United States and other World Bank member countries putting more capital in the bank to increase its development lending, the official indicated that the 188-member institution ought to scale back its ambition and stop lending to countries that can borrow elsewhere.
This is where China’s ambition meets US retrenchment. The United States is the largest member of the World Bank and can effectively block any major expansion, despite the wishes of the other member countries. But now that a majority of the bank’s members (measured by their voting power in the institution) are also members of the Chinese-led AIIB, squashed ambition at the World Bank is no longer the end of the story.
A landmark new report from AidData documents the scale and quality of China’s soft power ambitions through bilateral aid and government-directed development bank lending. China deploys a mix of traditional aid and non-aid financing in ways that do not appear to be very hung up on questions of whether countries “should” be eligible for borrowing.
Certainly, this raises important questions about debt sustainability in these countries, but there’s also an underlying principle at work—one that has the United States increasingly isolated from most other countries, including close allies in the G7. Namely, many development finance objectives globally are indifferent to the per capita incomes of developing countries. At the top of the list, investing in a new generation of clean energy infrastructure, something that has a limited window of opportunity from a climate perspective, needs to be driven primarily by the scale of impact globally. That means active investment in large emerging market countries, including China itself.
It’s no secret that the climate agenda is not compelling for the Trump administration. But actors in the White House and the Treasury and State departments should at least pause to consider the question of soft power. Are they really comfortable with a world in which a US-guided World Bank is engaged in fewer countries, while China is engaged in more? That seems like a losing strategy for US interests in the world.
A string of legislative efforts this year reveal two things about congressional attitudes toward US foreign assistance that might surprise you: support for aid is often bipartisan, and the seriousness and quality of thinking about aid reform is often very high. Case in point on both fronts is new legislation introduced by US Senators Bob Corker (R-Tenn.) and Chris Coons (D-Del.) that would create the architecture and principles for a policy review and assessment of US contributions to multilateral institutions.
The basic idea is compelling for the US government, which channels over $10 billion to multilateral entities each year. And it should be compelling to other countries and the multilateral entities themselves, since this $10 billion makes the United States in many respects the driver of key decisions in the multilateral system. This system has a strong stake in a thoughtful, evidence-driven approach to US policy engagement, whether in United Nations entities or at the World Bank.
The legislation reflects a good understanding of the multilateral entities themselves as well as earlier efforts by other countries, most notably the UK, to conduct multilateral aid reviews (MARs).
Having called for a US MAR two years ago, it is gratifying to see this legislation come to fruition. My assessment of the idea at the time also points to particular strengths of the Corker-Coons bill as well as some risks.
A key strength of this legislation is that it does not outsource the MAR. It is tempting to set up eminent persons groups to advise policymakers on major policy issues, but such groups, commissions, and panels are too easily ignored. Recognizing the stakes involved in a MAR exercise, with direct implications for budget allocations, the Corker-Coons bill integrates the review into the work of the relevant policymakers in the executive branch and congressional committees. In this way, the results of a MAR stand a much greater chance of directly informing budget and policy decisions.
Any MAR runs a risk that the results may serve to undermine the case for multilateralism. A review is inherently a critical exercise, aimed at identifying relative strengths and weaknesses among a group of multilateral institutions. All institutions under the review will have identified weaknesses, and any such weaknesses can bolster the arguments of those who tend to oppose multilateralism in general.
There are two ways to guard against this risk. One would be to broaden the scope of the review to all US aid, bilateral and multilateral. In this way, the strengths and weaknesses of multilateral institutions can be compared directly to USAID and other bilateral programs. This sounds appealing in principle but would be extremely challenging to implement in practice. In an earlier post, my colleague Charles Kenny points to the challenges of like-to-like comparisons among multilateral institutions, a challenge that is only compounded if you broaden the scope to bilateral programs. It’s a relief, then, the Corker-Coons bill maintains a focus on the MAR.
The other approach would pair the MAR with an ex ante policy commitment to devote a share of US assistance to multilateral channels. With a well-defined budget envelope, the MAR can be appropriately focused on relative funding allocations among multilateral institutions without as much worry that the exercise will lead to an erosion of the multilateral share of US assistance.
Making such a commitment, which has echoes of the international “0.7 percent” aid commitment long rejected by the United States, would be no easy task politically, so I understand why the legislation does not embrace the concept. But I do worry, particularly in the current political environment, that any critical assessments, even honest and careful ones, can be misused by political actors who do not embrace the principles of multilateralism in the way that I know Senators Corker and Coons do.
And here we come to the greatest question about this bill. It is encouraging to see such strong intellectual leadership coming from the Hill on the details of US foreign assistance. But as the legislation itself recognizes, leadership on a MAR must ultimately come from the executive branch. Unfortunately, very little from the past nine months reassures me that this administration would approach a MAR as a means to strengthen multilateralism, rather than a way to walk away from longstanding multilateral partners. Senators Corker and Coons have written a strong congressional oversight role into the MAR process, and if the MAR becomes a reality, I am reassured by the prospect that they and the other co-sponsors of the bill will exercise that oversight aggressively.
The Asian Infrastructure Investment Bank (AIIB) has enjoyed considerable success in its young life. The challenge going forward is to translate this resounding political success into operational effectiveness and sound strategy. Given the political dimensions of this new institution, it is also worth considering what it will mean for other MDBs like the World Bank and the ADB. There are large questions of political leadership in the multilateral “system” but also an array of issues on which the AIIB could help shape a new system-wide approach, whether defined by some division of labor among the MDBs or by introducing institutional innovations.
State Department guidance underscores the importance of its work in furthering development: “The surest path to creating more prosperous societies requires indigenous political will; responsive, effective, accountable, and transparent governance; and broad-based, inclusive economic growth. Without this enabling environment, sustained development progress often remains out of reach.”
The World Bank should declare the IDA-17 replenishment its last and move to replace it with a broader bank resource review. Sticking with the status quo risks an underfunded institution and one that is increasingly isolated from its shareholders (yes, that would be a bad thing).
This paper examines courses of action that could help the bank could adapt to shifting development priorities. It investigates how country eligibility standards might evolve and how the bank might start to break away from its traditional “loans to countries” model.
Private sector development has long been viewed as essential for economic growth in developing countries, and the US role in promoting it has focused mostly on how developing country governments could best set a policy environment that made it possible. But let’s consider the risks of concentrating too heavily on the private sector. What could go wrong with an agenda that is centered on “deal making for development”?
The world’s development challenges are far too vast for the old way of doing things. To generate the trillions of dollars necessary to achieve the Sustainable Development Goals, international institutions, policymakers and the private sector need a new approach that unlocks the power of private investment. IFC Executive Vice President and CEO Philippe Le Houérou will address how his institution’s new strategy of “creating markets,” especially where they are weak or nonexistent, can help redefine development finance in an uncertain global economic environment. Following Le Houérou’s remarks, he will be joined by a stellar panel for a discussion of the private sector development agenda.
“It’s nice to have a list,” CGD senior associate Scott Morris told me about the shortlist of eight candidates for the Presidency of the African Development Bank. He was giving credit to the Bank for holding what appears to be a truly transparent election process to succeed out-going President Donald Kaberuka. Who’s on the list? What’s good about it? And where does it fall short? These are all things Scott and I discussed in the latest CGD Podcast. Take a listen….
Despite the success of the Heavily Indebted Poor Countries (HIPC) in reducing the debt burdens of low-income countries, at least eleven Sub-Saharan African countries are currently in, or face a high risk of, debt distress. A few of those currently at risk include countries that have been excluded from traditional debt relief frameworks. For countries outside the HIPC process, this paper lays out the (formidable) steps for retroactive HIPC inclusion, concluding with lessons for countries seeking exceptional debt relief treatment.