Multilateral Development Banks:
General Capital Increases
Martin A. Weiss
Specialist in International Trade and Finance
March 4, 2011
Congressional Research Service
7-5700
www.crs.gov
R41672
CRS Report for Congress
P
repared for Members and Committees of Congress
Multilateral Development Banks: General Capital Increases
Summary
For the first time in the history of the institutions, each of the major Multilateral Development
Banks (MDBs) are simultaneously seeking increases in their capital bases to fund the continued
expansion of their development lending programs. The requests come after several years of
increased lending by the banks. If the increases are fully funded, the resources of the World Bank,
African Development Bank (AfDB), European Bank for Reconstruction and Development
(EBRD), Asian Development Bank (AsDB), and Inter-American Development Bank (IDB) would
increase by between 31% and 200%. Collectively, the requested capital increases are worth
around $348 billion. President Obama has included authorizations and appropriations for U.S.
participation in the capital increases at the MDBs in his FY2011 and FY2012 requests.
U.S. participation in any funding request for the MDBs requires authorization and appropriations
from Congress. In addition to the MDBs’ role in furthering broad U.S. foreign policy interests, the
112th Congress may choose to consider whether increasing the size of the MDBs is necessary to meet
developing country needs and whether sufficient progress has been made on MDB reform to justify
fully funding the President’s request. Members’ views on the following policy issues may also affect
their decision on whether to support or oppose increasing the size of the MDBs and the scale of their
operations. These issues include:
• Comparative effectiveness of bilateral and multilateral aid. Compared to
other advanced economies, the United States provides a smaller proportion of
development assistance through multilateral organizations, such as the MDBs,
than other countries. Is multilateral assistance more effective, and if so, should
greater amounts of U.S. foreign aid be channeled through the MDBs by
supporting the capital increases?
• Scope of MDB activity. The MDBs have expanded the range of activities that
they engage in to include issues such as climate change and food security.
Members may wish to evaluate whether the benefits of MDB engagement on
these issues outweigh potential costs. Some argue that a consequence of working
through the MDBs is duplication of efforts across a range of multilateral
institutions, which can be costly and inefficient. Others argue that this approach
leverages resources and provides common approaches.
• Role of emerging economic powers. Many rapidly growing economies,
including Brazil, China, and India, among others, borrow from the MDBs despite
having access to international capital markets and substantial holdings of foreign
exchange reserves. Supporting capital increases at the MDBs would allow higher
rates of lending to these quickly growing economies. Members may assess
whether the development-impact of increased MDB lending to credit-worthy
countries outweighs any potential crowding-out effect. At the same time, these
countries are increasing their shares and leadership roles in the institutions, with
important implications for the United States.
• U.S. bidding for MDB-funded projects. Firms located in large emerging
economies are winning a larger share of MDB procurement projects. Are U.S.
firms competing effectively for MDB projects? If not, since the general capital
increases (GCIs) would increase the amount of MDB projects, are policy options
available to better position U.S. firms to capture a larger share of MDB projects,
creating additional jobs for U.S. workers?
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Multilateral Development Banks: General Capital Increases
• Anti-corruption policies. The MDBs have different approaches to anti-
corruption measures. In procurement, for example, these range from international
best practices to country-based approaches, which, some analysts argue, may
increase the risk of monies being diverted for corrupt purposes. Congressional
legislation on capital increases may be seen as a potential opportunity for seeking
further reform.
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Multilateral Development Banks: General Capital Increases
Contents
Introduction ................................................................................................................................ 1
Background ................................................................................................................................ 1
What Are the Multilateral Development Banks (MDBs)? ...................................................... 1
Financing MDB Operations .................................................................................................. 2
The MDBs and the Global Financial Crisis............................................................................ 3
MDB General Capital Increase Requests ............................................................................... 5
Issues for Congress ..................................................................................................................... 6
Comparative Effectiveness of Bilateral and Multilateral Aid.................................................. 8
Scope of MDB Activity......................................................................................................... 9
Role of Emerging Economic Powers ................................................................................... 10
U.S. Bidding on MDB-Funded Contracts ............................................................................ 10
Anti-corruption Policies ...................................................................................................... 11
Legislative Action ..................................................................................................................... 14
Figures
Figure 1. Annual MDB Commitments, FY2005–FY2009 ............................................................ 4
Tables
Table 1. Basic Information on the MDBs..................................................................................... 2
Table 2. Total Outstanding Loans, Equity Investments, and Guarantees, FY2005–FY2009 .......... 4
Table 3. MDB Capital Increases .................................................................................................. 6
Table 4. U.S. Share of MDB Capital Increases to be Authorized and Appropriated
(Assuming Full U.S. Participation)........................................................................................... 6
Table 5. Largest Suppliers for World Bank Prior Review Contracts, 2005–2010......................... 13
Table 6. Largest Recipients of Regional Development Bank Procurement, 2005–2009............... 14
Contacts
Author Contact Information ...................................................................................................... 14
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Multilateral Development Banks: General Capital Increases
Introduction
World leaders agreed in 2009 at a summit of the Group of Twenty (G-20) major economies to
review the capital adequacy of the multilateral development banks (MDBs), following several
years of elevated MDB lending since the 2008 financial crisis.1 Shareholder nations, including the
United States, subsequently agreed to increase the capital stock of the World Bank’s main lending
arm, the International Bank for Reconstruction and Development (IBRD); the World Bank’s
private-sector loan facility, the International Finance Corporation (IFC); 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 fact that all of the MDBs are requesting capital increases presents an opportunity for the
Obama Administration and Congress to collectively evaluate U.S. participation and leadership in
the MDBs, debate whether the MDBs are using their existing capital effectively, and decide
whether to participate in any or all of the capital increases, and if so, whether to seek additional
reforms. Members may choose to consider the following:
• the comparative effectiveness of bilateral and multilateral aid, and the
responsibilities of the MDBs to assess and pursue effectiveness;
• the scope of MDB activity, and whether that scope serves U.S. national security,
economic, and foreign policy interests;
• MDB lending to emerging economic powers, and whether lending to China and
other dynamic economies should continue to be encouraged;
• the increasing role of emerging economic powers at the MDBs, and its
implications for U.S. influence and role;
• MDB-funded procurement, and potential U.S. export and commercial
opportunities; and
• anti-corruption efforts, and the responsibility of the MDBs to promote
development in poor countries prone to corruption while safeguarding MDB
resources and ensuring an open and fair bidding process for MDB procurement.
Background
What Are the Multilateral Development Banks (MDBs)?2
For the purposes of this report, the term “Multilateral Development Bank,” or “MDB,” refers to
the World Bank Group (including the International Bank for Reconstruction and Development
1 CRS Report R40977, The G-20 and International Economic Cooperation: Background and Implications for
Congress, by Rebecca M. Nelson.
2 For more information on the MDBs, see CRS Report R41170, Multilateral Development Banks: Overview and Issues
for Congress, by Rebecca M. Nelson; and CRS Report RS20792, Multilateral Development Banks: U.S. Contributions
FY2000-FY2011, and CRS Report R41537, Multilateral Development Banks: How the United States Makes and
Implements Policy, by Jonathan E. Sanford.
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Multilateral Development Banks: General Capital Increases
(IBRD) and the International Finance Corporation (IFC), as well as several other facilities), and
four 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).3 These international institutions finance
development projects and economic policy reform in developing countries. Table 1 provides
additional information on the MDBs.
Table 1. Basic Information on the MDBs
World Bank
(International Bank
European Bank for
for Reconstruction
Inter-American
African
Asian
Reconstruction and
and Development,
Development
Development
Development
Development
or IBRD)
Bank (IDB)
Bank (AfDB)
Bank (AsDB)
(EBRD)
Year created
1944 1959
1964 1966 1991
Membership
187 48 78 67 61
Headquarters
Washington, DC
Washington, DC
Tunis, Tunisia
Manila, Philippines
London, England
Concessional
International
Fund for Special
African
Asian Development
lending facility
Development
Operations (FSO)
Development
Fund (AsDF)
Association (IDA)
Fund (AfDF)
Private sector
International Finance
International
window (where
Corporation (IFC)
Investment
separate)
Corporation (IIC)
Percentage of
65.7
49.9
39.7
65.2
No explicit distinction
voting power held
by non-borrowing
shareholders
Percentage of U.S.
16.3 30.0
6.5
11.7 10.2
voting power
Source: MDB annual reports.
Financing MDB Operations
MDBs (with the exception of the IFC and the EBRD) have two main lending “windows.” The
first type of window is to make loans at near market-based interest rates, primarily to middle-
income developing countries. To finance these loans, MDBs borrow money from capital markets,
much like private financial institutions. MDBs are able to borrow from international capital
markets on excellent terms because of their AAA ratings, which in turn reflect in large part their
strong capital positions and the financial backing of their member country governments. The
second type of window is to provide concessional-rate loans (low interest rates and long
repayment periods) to the world’s poorest countries using money contributed periodically by the
MDBs’ member country governments.
3 There are also several sub-regional development banks, such as the Eurasian Development Bank, Caribbean
Development Bank, and Andean Development Corporation. The United States is not a member of these MDBs.
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MDBs borrow in world capital markets at market rates, but the rates they are required to pay
reflect their very high creditworthiness. Because these rates are typically much lower than those
paid by private borrowers, the banks are able to relend this money to their borrowers at much
lower interest rates. As such, the MDBs’ non-concessional lending windows are self-financing
and generate net income for the institutions, and they help subsidize concessional lending to the
poorest countries. Furthermore, by borrowing to finance their lending, the MDBs’ capital (and
hence, increases in capital) is leveraged, allowing them to lend more than the amount of their
capital.
The capital that shareholders contribute comes in two forms (with the exception of the IFC):
“paid-in capital,” which generally requires the payment of cash to the MDB; and “callable
capital,” which is funds that shareholders agree to provide, but only when necessary to avoid a
default on a borrowing or payment under a guarantee. Only a small portion (typically less than
5%) of the value of these capital shares is actually paid to the MDB. The vast bulk is callable
capital. Callable capital serves as ultimate backing for the MDBs borrowing in capital markets,
though the MDBs have never had to call upon those resources. Callable capital cannot be used to
finance loans, but only to pay off bondholders if the MDB is insolvent and unable to pay its
bondholders.
Two key factors distinguish MDBs from private sector banks: (1) the MDBs’ multilateral
shareholding structure and preferred creditor status; and (2) capitalization, including callable
capital, that is generally much higher than that of commercial lenders. This strong capital position
facilitates the AAA4 rating of these institutions. Thus, the MDBs can offer loans to developing
countries at rates lower than many private banks.
The MDBs and the Global Financial Crisis
After the 2008 financial crisis, there was a sharp contraction in capital flows to emerging
economies. Although private capital flows are recovering, they remain below pre-crisis levels.
Net private-sector inflows to emerging market countries now represent around 4% of world GDP,
compared to almost 7% during 2006.5 Capital from other governments (bilateral aid) and the
MDBs has become essential for many countries, both as a source of development finance and as a
means of leveraging remaining available private capital, through political risk insurance, bond
guarantees, and bridge financing.
Since 2008, lending has increased across all MDBs, but most dramatically at the World Bank. Its
commitments increased from $13.5 billion in 2008 to $32.9 billion in 2009; this is the largest
annual amount ever committed and it significantly exceeds the $22 billion the World Bank lent in
1999 during the Asian financial crisis. Figure 1 shows annual MDB lending to developing
countries since 2000. Table 2 provides total outstanding MDB commitments.
4 Credit rating agencies (Moody’s, Standard and Poor’s, etc.) assign a credit rating to their opinion of the relative credit
risk for a country or institution, such as an MDB. These have letter designations, ranging from “Aaa/AAA” for the
safest institutions to “D” for those in default.
5 Global Financial Stability Report Market Update, International Monetary Fund, January 25, 2011.
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Figure 1. Annual MDB Commitments, FY2005–FY2009
(Non-concessional loans, billions of current U.S. dollars)
35
30
25
20
15
10
5
0
2005
2006
2007
2008
2009
IBRD
IFC
AfDB
AsDB
IDB
EBRD
Source: MDB annual reports.
Notes: The World Bank Group fiscal year is from July 1 to June 30. Thus, for the IBRD and the IFC, which are
both part of the World Bank Group, 2009 refers to the fiscal year that ended June 30, 2010. At the regional
development banks, fiscal years correspond with the calendar year.
Table 2. Total Outstanding Loans, Equity Investments, and Guarantees,
FY2005–FY2009
(Billions of current U.S. dollars)
2005 2006 2007 2008 2009
IBRD
104.0 98.7 99.8 107.4 121.8
IFC 14.1 17.4 25.3 24.8 29.2
AfDB
8.1 8.1 9.2 9.4 12.3
AsDB
25.1 28.1 32.5 38.2 44.3
IDB
48.5 46.3 48.6 52.2 59.0
EBRD
14.7 18.2 23.5 21.7 26.2
Source: Standard and Poor’s.
Notes: The World Bank Group fiscal year is from July 1 to June 30. Thus, for the IBRD and IFC, 2009 refers to
the fiscal year that ended June 30, 2010. At the regional development banks, fiscal years correspond with the
calendar year.
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MDB General Capital Increase Requests
An across-the-board increase in all members’ shares of MDB capital, increasing the amount the
MDB can lend through its non-concessional window, is called a general capital increase (GCI).
This funding is not to be used to directly increase concessional financial assistance to low-income
countries, but rather to increase the capital base of the non-concessional window, allowing the
MDB to increase its borrowings on the international capital markets and thus increase the size of
its lending operations to market-eligible countries.
While Congress appropriates funds annually to help fund the MDBs’ concessional lending
facilities, capital increases of the main lending windows are rare. U.S. participation in MDB
capital increases is especially important, as the United States is the largest shareholder in the
MDBs and U.S. funding commitments often spur additional contributions from other member
countries. The Center for Global Development estimates that every $1 the United States
contributes to the World Bank as part of a GCI enables at least $30 in new World Bank lending
and $70 in new AfDB lending.6
The process for proposing and implementing a GCI is roughly similar for all institutions. New
funding plans for an MDB capital increase are discussed informally among member country
governments before they are considered by member countries. A supermajority vote of the
membership is required to approve capital increases and funding plans for each institution. Only
for the World Bank’s IBRD, though, does U.S. law require that Congress give its assent before
the United States can vote in favor of a new MDB funding plan.7
Following increased lending after the financial crisis, the United States and other governments
agreed to substantial capital increases at the MDBs. Collectively, these capital increases are worth
around $348 billion. Assuming full U.S. participation, the total U.S. share of new subscribed
capital would be $57 billion. While congressional authorization is required for the full amount,
appropriations are required only for paid-in capital, which would total $2.17 billion. The pay-in
period for paid-in capital ranges from three to eight years, depending on the MDB.
6 Todd Moss, Sarah Jane Staats, and Julia Barmeier, Billions More for International Institutions? The ABCs of the
General Capital Increase (GCI), Center for Global Development, Washington, DC, June 2010.
7 Section 286c of the Bretton Woods Agreements Act (P.L. 79-171; 22 U.S.C. 286c) states that “[u]nless Congress by
law authorizes such action, no governor or alternate appointed to represent the United States shall vote for an increase
of capital stock of the Bank under Article II, section 2,” of the IBRD Articles of Agreement “if such increase involves
an increased subscription on the part of the United States.”
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Detailed information on the current GCI requests is provided in Table 3 and Table 4.
Table 3. MDB Capital Increases
Percent of
Announced
Date Capital
Announced
Proposed
Amount to Be
Increase to Be
Increase
Capital
Increase,
Paid-In by
Paid-In by
Institution
Agreed
Increase
Percentage
Shareholders
Shareholders
IBRD 25-Apr-10
$86.2
billion
31% $5.1 6%
IFC 25-Apr-10
$200
million
8%
$0 —
AfDB 23-Apr-10
$66.5 billion
200% To
be
determined
6%
AsDB 29-Apr-09
$110
billion
200% $4.4
4%
IDB 23-Mar-10
$70
billion
100% $1.7
2%
EBRD 14-May-10
$15
billion
69% 0
0
Sources: Standard and Poor’s, U.S. Department of the Treasury.
Table 4. U.S. Share of MDB Capital Increases to be Authorized and Appropriated
(Assuming Full U.S. Participation)
Current U.S.
Total U.S. Share of
Ownership Share,
General Capital
Total U.S. Share of
Pay-In period for
Institution
Percentage
Increase
New Paid-In Capital
Paid Capital
IBRD
16.75%
$14.4 billion
$866 million
4-5 years
IFC 24.03% $0
—
—
AfDB 6.62% $4.3
billion $259.3
million 8
years
AsDB 15.57% $15.7
billion $532.9
million 5
years
IDB 30.03%
$21.0 billion
$510.0 million
5 years
EBRD 10.00% $1.2
billion
—
—
Source: U.S. Department of the Treasury.
Issues for Congress
While the executive branch manages the day-to-day U.S. participation in the MDBs, Congress
decides the overall terms of U.S. involvement by setting the level of U.S. contributions, and it
influences, through legislation, how the United States votes on policies and projects. Congress
can influence MDB policy by:
• fully funding or limiting the annual amounts appropriated for U.S. participation;
• enacting conditions attached to new funding agreements;
• enacting specific goals and priorities the United States will emphasize; and
• exercising its oversight responsibilities.
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This is the first time that capital increases for so many MDBs may be considered by Congress at
the same time. The present situation offers the Obama Administration and Congress an
opportunity to look at the MDBs as a whole and evaluate the relative significance of each
institution. It also provides an opportunity for the Administration and Congress to evaluate U.S.
participation in the institutions, debate whether the MDBs are using their existing capital
effectively, and decide whether participation in any or all of the capital increases is in the interest
of the United States and what additional policy reforms, if any, the United States should seek at
this time.
If Congress does not authorize (and appropriate funds for) the purchase of the MDB shares that
the Administration agreed to buy in the capital increase negotiations, the relative U.S.
shareholding of the MDB will become diluted. Voting shares are adjusted to reflect contributions
as they come in from shareholders, and delayed contributions will have an impact on the United
States’ current voting share. Any shares allocated to a country that are not paid for within the
allotted subscription period will be moved to the bank’s unallocated capital, potentially making
them available for other shareholders to acquire.
Dilution of U.S. voting power at the institution would lessen U.S. leadership at the MDBs. At the
AsDB, for example, there has been a long-standing arrangement where the United States and
Japan each own 12.5% of the bank’s shares, giving them a joint veto over major policy decisions.
This balance in leadership might be shifted if the United States does not meet its GCI
commitments, while other countries, such as China, increase their contribution, with possible
implications for the strategic direction of the bank.
On March 10, 2010, the Senate Foreign Relations Committee’s minority staff prepared a report on
reforming the MDBs, stating that “the Administration and the other donor countries of the G-20
should be firm in demanding that needed reforms are secured before committing additional
funds.”8 The report includes a number of recommendations, including strengthening anti-
corruption efforts, improving evaluation frameworks, and improving oversight of budget support
lending, among others. During its GCI negotiations with other MDB shareholder governments,
the Obama Administration gained support for many of these reforms, according to testimony
delivered before the Senate Committee on Foreign Relations in September 2010 (see text box
below). Secretary Geithner reiterated these efforts, and stressed the importance of the MDBs to
the Administration at additional hearings before the Senate Committee on Foreign Relations in
February 2011. At the hearings, he stated that U.S. investments at the MDBs “are a critical and
cost-effective component of the United States’ global economic leadership.”9
8 U.S. Congress, Senate Committee on Foreign Relations, “The International Financial Institutions: A Call for Change:
A Report to the Committee on Foreign Relations, United States Senate,” S. Prt. 111-43, March 10, 2010.
9 U.S. Congress, Senate Committee on Foreign Relations, Testimony of Tim Geithner, Secretary of the Treasury,
“Navigating a Turbulent Global Economy—Implications for the United States,” 112th Cong., 1st Sess., March 3, 2011.
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Recent MDB Reform Efforts
Controlling MDB Costs
• The World Bank agreed to overhaul its budget process to ensure that decisions on pricing, compensation, and
administrative costs are closely integrated and aligned with the bank’s strategic priorities.
• The IDB agreed to adopt a new income allocation model that sets loan prices consistent with the IDB’s financial
constraints and priorities, which include annual grants to Haiti of $200 million and providing highly subsidized
loans to its poorest borrowers. The IDB also crafted a new capital adequacy policy and investment guidelines.
• The AfDB agreed to a comprehensive financial model that has parameters on loan pricing, locks in a minimum
level of transfers to low-income countries, covers administrative expenses, and supports capital adequacy.
Anti-corruption and Good Governance
• The World Bank revised its disclosure policy, which now reflects a presumption of disclosure of documents
(operational and strategy, among others), compared to past practice, which only allowed disclosure of a
narrowly drawn list of documents. Similarly, the IDB and AfDB each committed to a new disclosure policy that
meets international best practices.
• The IDB enhanced the scope and credibility of its inspection panel, a forum for citizens who believe they have
been adversely affected by MDB operations. The IDB also committed to updating its environmental and social
safeguards.
Development Effectiveness
• The IDB committed to improving the quality of the loan portfolio by measuring the degree to which the
economic rationale of potential projects is well articulated and evaluable, risks are assessed, and monitoring and
evaluation plans are in place.
• The World Bank and the AfDB agreed to improve measurement and aggregation of project impacts and related
country development outcomes rather than focusing solely on outputs.
Source: U.S. Congress, Senate Committee on Foreign Relations, Testimony of Marisa Lago, Assistant Secretary of
the Treasury for International Markets and Development, “Banking on Reform: Capital Increase Proposals from the
Multilateral Development Banks,” 111th Cong., 2nd Sess., September 15, 2010.
Comparative Effectiveness of Bilateral and Multilateral Aid
Compared to other advanced economies, the United States provides a smaller percentage of its
development assistance through multilateral organizations, such as the MDBs, than other
countries. According to data from the Organization for Economic Cooperation and Development
(OECD), 12% of U.S. official development assistance in 2009 was disbursed through multilateral
institutions. By contrast, 21% of Japan’s, 37% of Germany’s, and 33% of the United Kingdom’s
2009 development aid was provided through multilateral institutions. Recent public polling data
suggest that far less than a majority of the American public supports multilateralism in U.S.
foreign aid despite some research pointing to the superior effectiveness of multilateral aid.10
10 Helen V. Milner and Dustin Tingley, “The Choice for Multilateralism: Foreign Aid and American Foreign Policy,”
October 2010, http://www.princeton.edu/~hmilner/working%20papers/MultilateralAid_112010_Distribution.pdf,
Mimeo.
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Supporters of providing U.S. development assistance multilaterally argue that because the MDB
charters forbid lending for political purposes, it is easier for the banks to secure politically
difficult economic policy reforms in recipient countries.11 In addition, multilateral contributions
from the United States leverage funds from other donors (private and public) to address certain
issues/sectors. For example, the United States designated a portion of U.S. Global Food Security
Initiative Funds to the multilateral food trust fund administered by the World Bank to encourage
other donors to do the same. While other donors have made commitments, they are waiting for
the United States to appropriate funds before making their contributions.
By contrast, some analysts argue that the United States cedes control over its aid programs when
a multilateral approach is used. First, critics argue, it is difficult for donors to specify uses when
funds are contributed multilaterally. If other donors are not in broad support of the U.S. aid
agenda, they argue, the United States might be able to achieve its foreign policy objectives more
directly by providing bilateral aid. Second, because the United States does not have veto power
on MDB lending, MDBs sometimes provide assistance to countries despite strong U.S.
opposition.
A purely bilateral approach might ensure that no U.S. funds are used to support aid programs seen
as running counter to U.S. foreign policy or national security interests. However, it might also
eliminate whatever influence U.S. participation has on MDB assistance. For example, by having
the option of abstaining rather than opposing a recent vote on an MDB-financed coal-fired power
plant in South Africa, the United States was able to influence the negotiations to secure a better
environmental outcome, including a larger energy component for the project and increased
commitments from the South African government to further scale up renewable energy.
Scope of MDB Activity
A defining feature of the contemporary international development assistance is the proliferation
of agencies providing development finance. While MDBs remain the primary source of
multilateral development finance, over the past half-century many new sources of development
finance have been created. This is especially evident in the proliferation of targeted funds such as
the Global Environment Facility and the Global Fund to Fight AIDS, Tuberculosis, and Malaria
(Global Fund). More than 200 international development agencies exist, according to the OECD.
Given the concerns of some Members about the size of the federal budget, Congress may explore
further the degree to which U.S. interests are served by enlarging the MDBs, who have expanded
their mandates to include a broader range of global issues, potentially diluting their expertise.
In addition to expanding the range of projects for which the banks lend, the MDBs are
increasingly providing greater amounts of funding in the form of policy loans (i.e., budget
support) compared to project loans. Policy-based lending accounted for almost 49% of the World
Bank’s total disbursements in 2009, compared to about 33% in 2008. Across the MDBs, policy-
based lending accounted for up to 25% (in the case of the IDB) in 2008. Increased MDB
government budget-support lending may raise oversight concerns, since measuring effectiveness
is more difficult than it is for traditional MDB project loans.
11 Alberto Alesina and David Dollar, “Who Gives Foreign Aid to Whom and Why?” NBER Working Paper No. w6612,
June 1998.
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Congress and the Administration may also determine whether elevated MDB assistance since
2008 represents a fundamental shift in demand for MDB assistance or a short-term spike caused
by the 2007–2009 economic crisis. In the case of the IMF, its resources had not kept pace with the
growth of global capital flows over the past two decades. Thus, it was not prepared to meet the
demand for countries seeking balance of payments support during the crisis.12
Increasing the resources of the MDBs would likely enable them to disburse increased amounts of
money in future years without expanding their staff involved with the design and implementation
of projects. Some might question, however, whether the operational efficiency of the MDBs and
continued growth of their volume of lending are appropriate goals. If Members of Congress
determine that MDB financing needs are temporary, short-term financing facilities, or making the
GCIs temporary, might be considered rather than permanent capital increases.
Role of Emerging Economic Powers
Members may consider the necessity of capital increases that would support higher levels of
lending to emerging market countries such as Brazil, China, and India, who have access to
international capital markets and large foreign exchange reserves. Critics argue that the
availability of official credit, when private credit is a viable alternative, may crowd out private
investment and create inefficiencies in the allocation of global capital, or divert capital away from
more-needy countries that lack financial resources. In addition to their borrowing, many of these
emerging economies are increasing their shares and leadership roles in the institutions, as a result
of recent G-20 agreements.
Others argue that the largest percentage of the global population in poverty resides in these
rapidly growing economies and that access to capital is insufficient in meeting the needs of the
poor. Thus, countries do not borrow from the MDBs solely for the financing but also for the
technical expertise offered as a part of MDB lending projects. Furthermore, interest earned
through the MDBs’ market rate-lending operations supports funding for grants and concessional
lending to the poorest countries. Limiting MDB market rate operations would reduce the size of
MDB annual income, and may thus require higher levels of donor contributions to maintain
current levels of concessional lending to the poorest countries.
U.S. Bidding on MDB-Funded Contracts
The MDBs provide opportunities for U.S. firms by funding projects in developing countries in a
range of sectors. According to some estimates, MDB lending and grants between 2011 and 2015
could exceed $500 billion. These contracts are awarded primarily through international
competitive bidding processes. However, most MDBs allow the borrowing country to give some
preference to domestic firms in awarding contracts for MDB-financed projects in order to help
spur development, and increasingly, more contracts are being awarded domestically, on a non-
competitive basis.
12 For more information, see CRS Report R40578, The Global Financial Crisis: Increasing IMF Resources and the
Role of Congress, by Jonathan E. Sanford and Martin A. Weiss.
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At current funding levels, procurement results at the World Bank amount to about $20 billion in
contracts each year. Of the 20,000-30,000 contracts awarded each year, about 7,000 are reviewed
by World Bank staff prior to contract award (Prior Review Contracts). Prior Review Contracts
comprise the largest World Bank loans and can be used as a guide to determine the distribution of
MDB contracts among member countries.
Brazil, China, India, and other emerging economies are increasingly claiming a large share of
MDB contracts (Table 5 and Table 6). U.S. firms were awarded $93.1 million of World Bank
contracts in 2010 compared to $225.2 million worth in 2000, though both years had roughly the
same total value of procurement contracts signed. Since the data do not include all World Bank
projects and do not identify all subcontractors, they may under-represent U.S. procurement.13
Given that some decline in the share of contracts won by U.S. firms appears to be evident,
Members may explore reasons for the decline and consider whether additional efforts are called
for to promote procurement opportunities at the MDBs. MDB-supported procurement
opportunities offer U.S. companies potential export opportunities to several rapidly growing
developing economies in sectors where the United States is leading and/or competitive. At the
same time, several countries, including Singapore, Korea, India, Austria, and Germany, are
implementing strategic and targeted efforts to increase the share of MDB contracts awarded to
their firms.
The Omnibus Trade and Competitiveness Act of 1988 (1988 Trade Act) requires the Secretary of
Commerce to staff a part-time or full-time procurement officer at all of the MDBs to assist U.S.
businesses in bidding on MDB projects.14 The Jobs Through Exports Act of 1992 increased the
staffing requirement by directing the Secretary of Commerce to assign at least one additional full-
time procurement officer at every MDB.15 Several of these positions are unfilled. Creating more
export opportunities by supporting the GCIs, and further supporting U.S. firms in securing MDB
contracts, could help toward the President’s goal of doubling exports by 2015.
Anti-corruption Policies
Members of Congress may also decide to examine recent efforts to improve anti-corruption
policies across the MDBs. For example, in April 2010, all of the MDBs discussed in this report
agreed that a company or an individual debarred by one MDB for more than one year may, with
certain exceptions, be debarred from carrying on business with all five MDBs.
The anti-corruption measures at the MDBs are relatively recent. The need for anti-corruption
policies became evident in the late 1990s, when scandals involving corruption became public and
the activities of the MDBs were more closely scrutinized. Development specialists recognized the
importance of combating corruption to achieve economic development, and in response, the
MDBs began to provide technical assistance in corruption prevention and governance to member
countries. They recognized that improving the anti-corruption mechanisms within their own
13 For example, if the Chinese office of IBM wins a World Bank contract, it will count under China’s totals. In
addition, some U.S. companies act as sub-contractors or equipment suppliers to local firms, so their national identity is
not visible in the contract awards list.
14 Section 2302 of the Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418, 22 U.S.C. 262s-2).
15 Section 501 the Jobs Through Exports Act of 1992 (P.L. 102-549, 22 U.S.C. 262s-2 note).
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organizations would complement governance activities in developing countries and increase
development effectiveness, in addition to improving their own credibility on governance issues.
Some analysts are concerned, however, that other recent MDB policies, primarily the use of
country-based procurement standards rather than international best practices on procurement and
a country-systems approach, may be counterproductive to the MDBs’ anti-corruption efforts. The
MDBs argue that country systems will strengthen national institutions in developing countries for
public expenditures, whether they come from MDB funds, taxes, or other donors. On the other
hand, critics note that harmonization of procedures within countries would likely come at the
expense of creating a set of international best practices on procurement. The country systems
approach, they argue, may lead to lower standards, weaker MDB oversight, and increased
corruption of the procurement process.
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Table 5. Largest Suppliers for World Bank Prior Review Contracts, 2005–2010
(Millions of U.S. dollars)
2005
2006
2007
2008
2009
2010
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Country Amount Country Amount Country Amount Country Amount Country Amount Country Amount
China 1,734.5
China 1,734.5
China 1,952.6
China 2,831.7
China 2,381.0
Italy 1,049.7
India 1,374.6
India 1,374.6
India 1,018.1
India 1,136.3
India 815.3
Brazil 982.5
Argentina
602.9 Argentina
602.9 Germany
688.3 Spain
612.7 Argentina
511.4 China
932.4
Egypt
444.6 Egypt
444.6 Argentina
378.9 Brazil
594.0 Brazil
469.6 India
530.9
France 263.0
France 263.0
United 352.1 Russia
448.1 Vietnam
409.5 South
445.3
Kingdom
Korea
United
122.3 United
158.9 United
130.8 United
157.0 United
88.4 United
93.1
States
States
States
States
States
States
Source: U.S. Department of the Treasury.
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Table 6. Largest Recipients of Regional Development Bank Procurement, 2005–2009
(Total aggregate, millions of U.S. dollars)
European Bank for
Asian Development
African Development
Inter-American
Reconstruction and
Bank (AsDB)
Bank (AfDB)
Development Bank (IDB)
Development (ERDB)
Supplier
Supplier
Supplier
Supplier
Country
Amount
Country
Amount
Country
Amount
Country
Amount
United States
2,656.2 China
1,454.0
Brazil
7,000.0 Russia
2,323.7
Korea 1,246.9
Japan
511.0
Argentina
4,900.0
Croatia 747.0
Japan 333.0
France 499.1
Mexico
3,400.0
Austria 627.4
Australia 215.5
Tunisia
476.6
Columbia
1,600.0
Italy
509.3
Germany 208.4
Morocco 467.4
United
States 1.0
Turkey
486.0
United States
164.4
United States
0.1
Source: U.S. Department of the Treasury.
Note: Based on nationality of contractor.
Legislative Action
The Obama Administration requested that contributions to the AsDB GCI be included in the
FY2011 budget. The Administration requested full authorization of $15.7 billion, and
appropriations of $106.6 million for the first of five installments to U.S. paid-in capital. On June
30, 2010, the House State-Foreign Operations Appropriations Subcommittee marked up and
approved, by voice vote, a draft FY2011 funding bill that would have provided no funding for the
AsDB GCI. On July 27, the Senate Appropriations Committee marked up and approved an
FY2011 State-Foreign Operations funding bill, S. 3676, that would have fully funded the
Administration’s request. No authorizations or appropriations for the AsDB, however, are
included in the current continuing FY2011 resolutions. Requests for authorization and
appropriations for the remaining MDBs are included in the FY2012 request.16
Author Contact Information
Martin A. Weiss
Specialist in International Trade and Finance
mweiss@crs.loc.gov, 7-5407
16 CRS Report R41170, Multilateral Development Banks: Overview and Issues for Congress, by Rebecca M. Nelson.
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