Multilateral Development Banks: Overview
and Issues for Congress

Rebecca M. Nelson
Analyst in International Trade and Finance
April 9, 2010
Congressional Research Service
7-5700
www.crs.gov
R41170
CRS Report for Congress
P
repared for Members and Committees of Congress

Multilateral Development Banks: Overview and Issues for Congress

Summary
Overview: The multilateral development banks (MDBs) include the World Bank and four smaller
regional development banks: the African Development Bank (AfDB), the Asian Development
Bank (AsDB), the European Bank for Reconstruction and Development (EBRD), and the Inter-
American Development Bank (IDB). The United States is a member of each of the MDBs. The
MDBs provide financial assistance to developing countries to promote economic and social
development. They primarily fund large infrastructure and other development projects and,
increasingly, provide loans tied to policy reforms by the government. Most of the MDBs have
two facilities from which they make loans (loan windows): a non-concessional lending window
that provides loans to middle-income countries at market-based interest rates, and a concessional
lending window that provides loans at below-market interest rates and grants to low-income
countries.
Debate over the effectiveness of MDB financial assistance is contentious. Critics argue that the
MDBs focus on “getting money out the door” (rather than delivering results in developing
countries), are not transparent, and lack a clear division of labor. They also argue that providing
aid multilaterally relinquishes U.S. control over where and how the money is spent. Proponents
argue that providing aid to poor countries is the “right” thing to do and has been successful in
helping developing countries make strides in health and education over the past four decades.
They also argue that providing foreign aid to the MDBs is important for leveraging funds from
other donors, tying policy reforms to financial assistance, and enhancing U.S. leadership. Most
U.S. aid for economic and social development is provided directly to projects and programs in
developing countries (bilateral aid) rather than to multilateral organizations, like the MDBs
(multilateral aid).
Issues for Congress: Congressional legislation is required for U.S. financial contributions to the
MDBs. Replenishments of the concessional windows occur regularly; capital increases for the
non-concessional windows happen more infrequently. Unusually, all the MDBs have currently
requested capital increases, generally because MDB lending has increased following the global
financial crisis. Any U.S. participation in capital increases are likely to be included in the FY2011
(for the AsDB) and FY2012 (for the other MDBs) budgets. See also CRS Report RS20792,
Multilateral Development Banks: U.S. Contributions FY1998-FY2009, by Jonathan E. Sanford.
In addition to congressional hearings on the MDBs, Congress exercises oversight over U.S.
participation in the MDBs through legislative mandates. These mandates direct the U.S.
Executive Directors to the MDBs to advocate certain policies and how they should vote at the
MDBs on various issues. Congress also issues reporting requirements for the Treasury
Department on issues related to MDB activities. Finally, Congress can withhold funding for the
MDBs unless certain institutional reforms are met (“power of the purse”).
More than $30 billion in contracts are awarded each year to complete projects financed by the
MDBs. Some of these contracts are awarded to U.S. companies. Major changes are underway at
the World Bank, the biggest MDB, that would alter how companies bid on World Bank projects.
The World Bank argues that these changes will strengthen national institutions, while opponents
argue that they will weaken existing procurement standards. Finally, the G-20 has proposed
voting reform at the World Bank to reflect the increased role of emerging-markets in the world
economy. While the voting power of the United States is unlikely to be affected, these proposals
are likely to be a focus of discussion about the World Bank moving forward.
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Multilateral Development Banks: Overview and Issues for Congress

Contents
Introduction ................................................................................................................................ 1
Overview of the Multilateral Development Banks ....................................................................... 2
Historical Background .......................................................................................................... 2
World Bank.....................................................................................................................2
Regional Development Banks ......................................................................................... 3
Operations: Financial Assistance to Developing Countries..................................................... 6
Financial Assistance Over Time ...................................................................................... 6
Recipients of MDB Financial Assistance ......................................................................... 7
Funding: Donor Commitments and Contributions................................................................ 13
Non-Concessional Lending Windows ............................................................................ 13
Concessional Lending Windows.................................................................................... 16
Structure and Organization.................................................................................................. 18
Relation to Other International Institutions .................................................................... 18
Internal Organization .................................................................................................... 18
Debates about Effectiveness of the MDBs ........................................................................... 20
Effectiveness of Foreign Aid ......................................................................................... 20
Bilateral vs. Multilateral Aid ......................................................................................... 21
Issues for Congress ................................................................................................................... 23
Authorizing and Appropriating U.S. Contributions to the MDBs ......................................... 23
Frequency and Process .................................................................................................. 23
Administration’s Request for FY2011 ........................................................................... 24
Congressional Oversight ..................................................................................................... 27
U.S. Commercial Interests and “Country Systems”.............................................................. 28
Proposals for Voting Reform at the World Bank................................................................... 30

Figures
Figure 1. MDB Non-Concessional Financial Assistance, 2000-2009............................................ 6
Figure 2. MDB Concessional Financial Assistance, 2000-2009.................................................... 7
Figure 3. World Bank: Commitments of Financial Assistance, FY2009........................................ 8
Figure 4. African Development Bank: Commitments of Financial Assistance, 2008..................... 9
Figure 5. Asian Development Bank: Commitments of Financial Assistance, 2008...................... 10
Figure 6. European Bank for Reconstruction and Development: Commitments of
Financial Assistance, 2008 ..................................................................................................... 11
Figure 7. Inter-American Development Bank: Commitments of Financial Assistance,
2008 ...................................................................................................................................... 12
Figure 8. U.S. Bilateral and Multilateral Official Development Assistance, 2001-2008 .............. 22
Figure 9. Comparison of IBRD Voting Share and Share of World GDP...................................... 32

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Multilateral Development Banks: Overview and Issues for Congress

Tables
Table 1. Overview of MDB Lending Windows ............................................................................ 5
Table 2. MDB Non-Concessional Lending Windows: U.S. Share of Capital Subscriptions......... 15
Table 3. MDB Non-Concessional Lending Windows: Top Donors ............................................. 16
Table 4. MDB Concessional Lending Windows: U.S. Share of Cumulative Contributions.......... 17
Table 5. MDB Concessional Lending Windows: Top Donors..................................................... 18
Table 6. U.S. Executive Directors.............................................................................................. 19
Table 7. U.S. Voting Power in the MDBs................................................................................... 19
Table 8. Administration Request for Appropriations to the MDBs, FY2011................................ 25
Table 9. MDB Contracts Identifiably Awarded to U.S. Companies............................................. 29

Contacts
Author Contact Information ...................................................................................................... 33
Acknowledgments .................................................................................................................... 33

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Multilateral Development Banks: Overview and Issues for Congress


Introduction
Multilateral Development Banks (MDBs) are international institutions that provide loans and
grants to developing countries in order to promote economic and social development. The term
MDBs typically refers to the World Bank and four smaller regional development banks:
• the African Development Bank (AfDB);
• the Asian Development Bank (AsDB);
• the European Bank for Reconstruction and Development (EBRD); and
• the Inter-American Development Bank (IDB).1
The United States is a member of each of these institutions.2
Congressional interest in the MDBs has increased since the outbreak of the current global
financial crisis. Following the onset of the crisis in fall 2008, the MDBs ramped up financial
assistance to developing countries, and each of the MDBs has requested increased funding from
their member states to increase lending to middle-income countries. A capital increase for an
MDB is unusual and simultaneous requests for capital increases by all the MDBs has not
happened since the 1970s. Any U.S. financial contribution to the MDBs requires congressional
authorization and appropriation legislation. Negotiations for increasing MDB resources are
currently underway, and it is expected that any increases would be included in the FY2011 budget
(for the AsDB) or FY2012 budget (for the other MDBs). Hearings may be held in 2010.
This report provides an overview of the MDBs and highlights major current issues for Congress.
The first section discusses the history of the MDBs, their operations, major donor contributions,
their organization, and debates about the effectiveness of MDB financial assistance. The second
section discusses issues of particular interest to Congress, including congressional legislation
authorizing and appropriating U.S. contributions to the MDBs, congressional oversight of the
MDBs, and U.S. commercial interests in the MDBs. It also discusses recent proposals for
increasing the voting power of emerging-markets at the World Bank.


1 There are also several sub-regional development banks, such as, the Caribbean Development Bank and the Andean
Development Corporation. However, the United States is not a member of these sub-regional development institutions.
This report does not discuss the North American Development Bank (NADBank), a binational financial institution
capitalized and governed equally by the United States and Mexico.
2 The International Monetary Fund (IMF), whose mandate is to ensure international financial stability, is not an MDB.
The IMF does lend to developing countries on concessional terms (defined on p. 2), but this lending is primarily used to
address balance of payments problems. However, the IMF provides some financial assistance to low-income countries,
and the MDBs provide some balance of payments support through policy-based loans. This has led to some criticism in
recent years about duplication of IMF and MDB efforts. Broadly speaking, though, the IMF focuses on providing
financial support to countries facing balance of payments difficulties, and the MDBs provide financial support for
economic and social development.
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Multilateral Development Banks: Overview and Issues for Congress


Overview of the Multilateral Development Banks
The MDBs provide financial assistance to developing countries, typically in the form of loans and
grants, for investment projects and policy-based loans. Project loans include large infrastructure
projects, such as highways, power plants, port facilities, and dams, as well as social projects,
including health and education initiatives. Policy-based loans provide governments with
financing simultaneous with agreement by the borrower country government that it will undertake
particular policy reforms, such as the privatization of state-owned industries or reform in
agriculture or electricity sector policies. Policy-based loans can also provide budgetary support to
developing country governments. In order for the disbursement of a policy-based loan to
continue, the borrower must implement the specified economic or financial policies. Some have
expressed concern over the increasing budgetary support provided to developing countries by the
MDBs. Traditionally, this has been the province of the International Monetary Fund (IMF).
Most of the MDBs have two funds, often called lending windows or lending facilities. One type
of lending window is used to make loans at market-based interest rates.3 Such non-concessional
loans are, depending on the MDB, extended to governments and private sector firms in middle-
income and some creditworthy low-income countries. The other type of lending window is used
to make loans at below-market interest rates (concessional loans) and grants to the governments
of low-income countries.
Historical Background
World Bank
The World Bank is the oldest and largest of the MDBs. The World Bank Group comprises three
sub-institutions that make loans and grants to developing countries: the International Bank for
Reconstruction and Development (IBRD), the International Development Association (IDA), and
the International Finance Corporation (IFC).4
The famous 1944 Bretton Woods Conference led to the establishment of the World Bank, the
IMF, and the institution that would eventually become the World Trade Organization (WTO). The
IBRD was the first World Bank affiliate created, when its Articles of Agreement became effective
in 1945 with the signatures of 28 member governments. Today, the IBRD has near universal
membership with 186 member nations. Only Cuba and North Korea, and a few micro-states such


3 These carry repayment terms that are lower than those normally required for commercial loans, but they are not
subsidized. See the discussion of financing below.
4 In addition to the IBRD, IDA, and the IFC, the World Bank Group also includes the Multilateral Investment
Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). The term
“World Bank” typically refers to IBRD and IDA specifically. MIGA and ICSID are not covered in this report, even
though they arguably play an important role in fostering economic development, because they do not make loans and
grants to developing countries. MIGA provides political risk insurance to foreign investors, in order to promote foreign
direct investment (FDI) into developing countries. The ICSID provides facilities for conciliation and arbitration of
disputes between governments and private foreign investors.
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as the Vatican, Monaco, and Andorra, are non-members. The IBRD lends mainly to the
governments of middle-income countries at market-based interest rates.
In 1960, at the suggestion of the United States, IDA was created to make concessional loans (with
low interest rates and long repayment periods) to the poorest countries. IDA also now provides
grants to these countries. The IFC was created in 1955 to extend loans and equity investments to
private firms in developing countries. The World Bank initially focused on providing financing
for large infrastructure projects. Over time, this has broadened to also include social projects and
policy-based loans.
Regional Development Banks
Inter-American Development Bank
The IDB was created in 1959 in response to a strong desire by Latin American countries for a
bank that would be attentive to their needs, as well as U.S. concerns about the spread of
communism in Latin America.5 Consequently, the IDB has tended to focus more on social
projects than large infrastructure projects, although the IDB began lending for infrastructure
projects as well in the 1970s. From its founding, the IDB has had both non-concessional and
concessional lending windows. The IDB’s concessional lending window is called the Fund for
Special Operations (FSO). The IDB Group also includes the Inter-American Investment
Corporation (IIC) and the Multilateral Investment Fund (MIF), which extend loans to private
sector firms in developing countries, much like the World Bank’s IFC.
African Development Bank
The AfDB was created in 1964 and was for nearly two decades an African-only institution,
reflecting the desire of African governments to promote stronger unity and cooperation among the
countries of their region. In 1973, the AfDB created a concessional lending window, the African
Development Fund (AfDF), to which non-regional countries could become members and
contribute. The U.S. joined the AfDF in 1976. In 1982, membership in the AfDB non-
concessional lending window was officially opened to non-regional members. The AfDB makes
loans to private sector firms through its non-concessional window and does not have a separate
fund specifically for financing private sector projects with a development focus in the region.
Asian Development Bank
The AsDB was created in 1965 to promote regional cooperation. Similar to the World Bank, and
unlike the IDB, the AsDB’s original mandate focused on large infrastructure projects, rather than
social projects or direct poverty alleviation. The AsDB’s concessional lending facility, the Asian
Development Fund (AsDF), was created in 1973. Like the AfDF, the AsDB does not have a


5 Sarah Babb, Behind the Development Banks: Washington Politics, World Poverty, and the Wealth of Nations
(Chicago: University of Chicago Press, 2009).
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separate fund specifically for financing private sector projects, and makes loans to private sector
firms in the region through its non-concessional window.
European Bank for Reconstruction and Development
The EBRD is the youngest MDB, founded in 1990. The motivation for creating the EBRD was to
ease the transition of the former communist countries of Central and Eastern Europe (CEE) and
the former Soviet Union from planned economies to free-market economies. The EBRD differs
from the other regional banks in two fundamental ways. First, the EBRD has an explicitly
political mandate: to support democracy-building activities. Second, the EBRD does not have a
concessional loan window. The EBRD’s financial assistance is heavily targeted on the private
sector, although the EBRD does also extend some loans to governments in CEE and the former
Soviet Union.
Table 1 summarizes the different lending windows for the MDBs, noting what types of financial
assistance they provide, who they lend to, when they were founded, and how much financial
assistance they committed to developing countries in 2008 or FY2009.6 The World Bank
accounted for more than 60% of total MDB financial assistance commitments to developing
countries in 2008 or FY2009.7 Also, more than 60% of the financial assistance provided by the
MDBs to developing countries in 2008 or FY2009 was on non-concessional terms.













6 World Bank commitments are for FY 2009 (July 2008 – June 2009). Regional bank commitments are for 2008
(calendar year).
7 Including IBRD, IFC, and IDA.
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Multilateral Development Banks: Overview and Issues for Congress


Table 1. Overview of MDB Lending Windows
MDB
Type of Financing
Type of Borrower
Year
Commitments,
Founded
2008 or
FY2009
(Billion US$)
World Bank Group




International Bank for
Non-concessional loans Primarily middle-income
1944 32.9
Reconstruction and
governments, also some
Development (IBRD)
creditworthy low-income
countries
International
Concessional loans and
Low-income governments
1960
14.0
Development
grants
Association (IDA)
International Finance
Non-concessional loans Private sector firms in
1955 10.5
Corporation (IFC)
and equity investments
developing countries





African
Non-concessional loans Middle-income governments,
1964 2.8
Development Bank
some creditworthy low-
(AfDB)
income governments, and
private sector firms in the
region
African Development
Concessional loans and
Low-income governments in
1973 2.6
Fund (AfDF)
grants
the region





Asian Development Non-concessional loans Middle-income governments,
1965 8.7
Bank (AsDB)
some creditworthy low-
income governments, and
private sector firms in the
region
Asian Development
Concessional loans and
Low-income governments in
1973 1.8
Fund (AsDF)
grants
the region





European Bank for
Non-concessional loans Primarily private sector firms
1990 7.4
Reconstruction and
and equity investments
in developing countries in the
Development
region, also developing-
(EBRD)
country governments in the
region





Inter-American
Non-concessional loans Middle-income governments,
1959 11.1
Development Bank
some creditworthy low-
(IDB)
income governments, and
private sector firms in the
region
Fund for Special
Concessional loans and
Low-income governments in
1959 0.1
Operations (FSO)
grants
the region





Source: MDB Annual Reports. World Bank data is for FY2009 (July 2008 – June 2009). Regional development
bank data is for 2008 (calendar year). Most of the MDBs also have additional funds that they administer, typical y
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funded by a specific donor and/or targeted towards narrowly defined projects. These special funds tend to be
very small in value and are not included in this report.
Operations: Financial Assistance to Developing Countries
Financial Assistance Over Time
Figure 1 shows MDB financial commitments to developing countries since 2000. As a whole,
non-concessional MDB financial assistance was relatively flat until the current global financial
crisis prompted major member countries to press for increased financial assistance. In response to
the financial crisis and at the urging of its major member countries, the IBRD dramatically
increased lending between FY2008 and FY2009. When the 2009 lending data for the regional
development banks is released later this year (2010), they are also expected to show substantial
upticks in lending.
Figure 1. MDB Non-Concessional Financial Assistance, 2000-2009

Source: MDB Annual Reports.
Notes: World Bank data is for FY2009 (July 2008 – June 2009). Regional development bank data is for 2008
(calendar year).
Figure 2 shows concessional financial assistance provided by the MDBs to developing countries
from 2000 to 2008-2009. The World Bank’s concessional lending arm, IDA, has grown steadily
over the decade in nominal terms, while the regional development bank concessional lending
facilities, by contrast, have remained relatively stable in nominal terms over the past several
years. When the 2009 data for the regional development banks becomes available, however, it is
expected that these figures will show an increase in concessional assistance as the regional banks
responded to the financial crisis.
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Figure 2. MDB Concessional Financial Assistance, 2000-2009

Source: MDB Annual Reports.
Notes: World Bank data is for FY2009 (July 2008 – June 2009). Regional development bank data is for 2008
(calendar year).
Recipients of MDB Financial Assistance
Figures 3-7 show which countries received commitments for financial assistance from the MDBs
in the most recent year available (FY2009 for the World Bank and 2008 for the regional
development banks). Additionally, Figure 3 shows how much, on a per capita basis, each country
received. Darker regions in the graphs indicate higher levels of MDB financial assistance per
capita. The data used is a sum of total financial assistance – concessional and non-concessional –
for each MDB.
Generally, Latin America and Eastern and Central Europe (CEE) received the highest levels of
financial assistance per capita from the World Bank in FY2009, although there are notable
instances in Asia and Africa, such as Kazakhstan and Botswana. For the AfDB, financial
assistance per capita in 2008 was concentrated in Western and Eastern Africa, with some lending
in Northern African (particularly Morocco and Egypt) and Southern Africa (particularly
Botswana and South Africa). For the AsDB, Mongolia, Kazakhstan, Georgia, Papua New Guinea,
and the Cook Islands were among the top recipients of financial assistance per capita in 2008.
Regional economic powers China and India were also among the recipients of lower levels of
financial assistance per capita from the AsDB in 2008. For the EBRD and the IDB, financial
assistance per capita was spread fairly evenly throughout the region in 2008. For the EBRD,
Bosnia and Herzegovina, Georgia, Moldova, and Albania received the highest levels of financial
assistance per capita in 2008. Russia also received substantial assistance from the EBRD in 2008.
For the IDB, the Bahamas, Costa Rica, Panama, and Barbados received high levels of financial
assistance per capita. Mexico and Brazil also received lower levels of financial assistance from
the IDB in 2008, among others.

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Figure 3. World Bank: Commitments of Financial Assistance, FY2009


Source: World Bank Projects & Operations Database, http://go.worldbank.org/0FRO32VEI0. IFC FY09 Project & Portfolio Information,
http://www.ifc.org/ifcext/annualreport.nsf/Content/AR2009_Projects_Portfolio.
Notes: Includes concessional and non-concessional financial assistance from lending windows listed in Table 1 (IBRD, IDA, and IFC). Excludes regional assistance, which is
typically a small portion of the banks’ lending portfolios.
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Multilateral Development Banks: Overview and Issues for Congress


Figure 4. African Development Bank: Commitments of Financial Assistance, 2008

Source: African Development Bank Annual Report, 2008.
Notes: Includes concessional and non-concessional financial assistance from lending windows listed in Table 1.
Excludes regional assistance, which is typically a small portion of the banks’ lending portfolios.
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Figure 5. Asian Development Bank: Commitments of Financial Assistance, 2008

Source: Asian Development Bank Annual Report, 2008.
Notes: Includes concessional and non-concessional financial assistance from lending windows listed in Table 1. Excludes regional assistance, which is typically a small
portion of the banks’ lending portfolios.
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