Multilateral Development Banks: Issues for the 108th Congress
Order Code IB96008
CRS Issue Brief for Congress
Received through the CRS Web
Multilateral Development Banks:
Issues for the 108th Congress
Updated December 19, 2003
Jonathan E. Sanford and Martin A. Weiss
Foreign Affairs, Defense and Trade Division
Congressional Research Service ˜ The Library of Congress
CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Introduction
U.S. Participation in the Multilateral Banks
Bush Administration Policy Towards the IFIs
Administration Statements
IDA Grants
Measurable Results
Improved Productivity
Congressional Action
Authorization Legislation
Current Status
Asian Development Fund/IFAD
International Development Association
African Development Fund
Authorization in the Appropriation Bill
Appropriations
Fiscal 2003
Senate Appropriations
House Appropriations
Reforming the IFIs
MDBs and Developing Country Debt
MDBs and Poverty
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Multilateral Development Banks: Issues for the 108th Congress
SUMMARY
The U.S. is a member of five multilateral
arrears in the MDBs to $322 million.
development banks (MDBs): the World Bank,
Inter-American Development Bank (IDB),
In mid-2003, the House authorized (in
Asian Development Bank (ADB), African
the pending FY2004 appropriations bill)
Development Bank (AFDB), and European
legislation authorizing U.S. participation in
Bank for Reconstruction and Development
several pending MDB funding plans. Promi-
(EBRD). It also belongs to two related orga-
nent among these is an authorization for $2.85
nizations, the North American Development
billion (to be appropriated over 3 years, for the
Bank (NADB) and the International Fund for
International Development Association (IDA),
Agricultural Development (IFAD).
the World Bank’s concessional aid facility.
The new program for IDA grants will not
As a group, the MDBs are the largest
become effective until the U.S. approves this
source of development aid for middle- and
enabling legislation. Also pending are
low-income countries. They lent or invested
authorizations of $354 million (over 3 years)
nearly $40 billion in 2000, four-fifths of it at
for the African Development Fund and $412
market-related terms and the rest on
million (over 4 years for the Asian Develop-
concessional terms. The World Bank ac-
ment Fund. The United States is in arrears
counted for half of all MDB aid and 62% of
$322 million in its payments to MDBs. The
all MDB concessional aid in 1997.
U.S. is one year behind other countries in its
actions to authorize these contributions.
In the World Bank and most regional
MDBs, the U.S., European Union, and Japan
The MDBs have taken several initiatives
control over half of the vote. U.S. participa-
to help middle- and low-income countries deal
tion in the MDBs is managed by the Treasury
with their foreign debt problems. The MDBs
Department. Congress has substantial influ-
have traditionally made poverty alleviation
ence over the direction and focus of U.S.
their first priority goal, though some critics
policy. The MDB market-based loan windows
say they should target more of their aid for
have quasi-permanent funding authority. By
direct poverty alleviation programs and for
contrast, the concessional loan windows
encouraging private sector growth. The IMF
require periodic contributions by donor coun-
and MDBs have also increased substantially
tries in order to continue operations.
their transparency and the amount of informa-
tion they provide to the public on their opera-
In February 2003, Congress approved
tions. Many believe this will make them more
legislation appropriating $1.304 billion for
effective. Critics say that more data should be
contributions to MDB programs. The Admini-
available. Some borrowers believe they are
stration had sought $1.437 billion. With this
being forced to reveal too much. Countries
legislation, the United States is $518 million
may bar the MDBs from releasing information
in arrears on U.S. arrears to MDB programs
about themselves.
For fiscal 2004, the Administration sought
$1,555 million for MDB programs. If fully
appropriated, this would reduce the U.S.
Congressional Research Service ˜ The Library of Congress
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MOST RECENT DEVELOPMENTS
House and Senate conferees agreed November 21, 2003 on a conference report for
the fiscal 2004 foreign operations appropriations bill (H.R. 2800). This included agreed
language authorizing U.S. participation in pending MDB funding plans and the appropriation
of funds for MDB programs for fiscal 2004. Due to the press of business at the end of the
session, however, the agreed language for H.R. 2800 was rolled together with other
appropriation bills into H.R. 2673, the Fiscal 2004 Consolidated Appropriations bill (H.R.
2673.). The House agreed on December 8 to approve the consolidated appropriations bill.
In the Senate, a cloture motion was filed on December 9 to close debate on the bill and a vote
on the cloture motion has been scheduled for January 20, 2004. . A vote on that cloture
motion was scheduled for January agreed to postpone consideration of the cloture until
January 20, 2004.
BACKGROUND AND ANALYSIS
Introduction
For 50 years, the MDBs have been major forums for economic cooperation and key
vehicles through which the United States and other countries have channeled development
aid. The cost of U.S. participation in them has been controversial. The Banks have also
come under substantial criticism — from many different perspectives — for presumed
weaknesses or errors in their policies and operations. In recent years, there has been much
discussion in public and official circles about possible changes in the architecture of the
international financial system, particularly the relationship between the MDBs and the
International Monetary Fund (IMF). For information on specific issues, see: CRS Report
RL31136,World Bank: IDA Loans or IDA Grants? and CRS Report RL31418, World Bank:
Funding IDA’s Assistance Program; Russia and the International Financial Institutions:
From Special Case to a Normal Country, in the Joint Economic Committee’s publication
(S.Prt. 107-50) Russia’s Uncertain Economic Future (available from author).
U.S. Participation in the Multilateral Banks
The MDBs are international agencies that finance development programs in poor
countries using money borrowed in world capital markets or contributed by developed
countries. Run by their own managements and staffs of international civil servants, they are
supervised by boards of executive directors and boards of governors selected by member
country governments. Voting shares are weighted on the basis of countries’ contributions.
The IMF is a monetary institution, not a development bank. Still, it lends mainly to
developing countries and its policies often affect economic conditions in borrower countries.
The United States belongs to the World Bank and four regional banks: the African
Development Bank (AFDB), Asian Development Bank (ADB), European Bank for
Reconstruction and Development (EBRD), and Inter-American Development Bank (IDB).
It also belongs to two other institutions, the North American Development Bank (NADB)
and the International Fund for Agricultural Development (IFAD). In 1999, they lent or
invested over $50 billion — 82% on market-based terms and the rest on concessional terms
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(low interest rates, long repayment periods) to the poorest countries. The World Bank
provided 58% of the total and 77%of the concessional funds.
Member countries monitor activities of the MDBs on two levels: through boards of
governors (which usually meet annually) and executive boards (which are in continuous
session). Funds cannot be raised and loans and policies cannot be approved without the
consent of MDB executive boards. For additional background information on the MDBs, see
CRS Report RS20793, Multilateral Development Banks: Basic Background.
The President has the ultimate authority under U.S. law to direct U.S. policy and
instruct the U.S. representatives at the MDBs. This authority has been delegated to the
Secretary of the Treasury. The Assistant Secretary for International Affairs manages
day-to-day U.S. participation with the help of a professional staff of 20 persons. With the
advice and consent of the Senate, the President names individuals to represent the United
States on the executive boards of the MDBs. Treasury coordinates U.S. participation in the
MDBs through two interagency panels. The Working Group on Multilateral Assistance
(WGMA) reviews all prospective MDB loans and policy documents on an ongoing basis.
The National Advisory Council on International Monetary and Financial Policies (NAC) has
some residual responsibilities in this area. It is also responsible (by law) for issuing an
annual report discussing U.S. policy and the recent activities of the IFIs. The last report (for
fiscal 1998) was filed in 2000. The next most recent, for fiscal 1992, was filed in 1995.
Congress has a major role in the formulation of U.S. policy towards the IFIs. Congress
must give its consent by law before the United States may agree to participate in any new IFI
funding agreements. The Senate has advise and consent authority over all persons nominated
to major policy-making roles in the executive branch. On many occasions, Congress has
enacted legislation specifying what U.S. policy shall be in the IFIs and how the U.S.
executive directors at these institutions shall vote and the objectives they shall pursue.
Congress has also frequently made specific suggestions to the Administration through Sense
of Congress resolutions or language in committee reports accompanying legislation
suggesting specific goals and priorities the United States ought to emphasize in the IFIs.
For more information on the procedures governing U.S. participation in the MDBs, see
CRS Report RS20791, Multilateral Development Banks: Procedures for U.S. Participation.
For information about U.S. contributions, see CRS Report RS20792, Multilateral
Development Banks: U.S. Contributions FY1990-2001. For a discussion of development
issues, see CRS Report RL31662, Developing Countries: Definitions, Concepts and
Comparisons. See also CRS Report RS20329, African Development Bank and Fund and
CRS Report RS21437 The Asian Development Bank .
The United States has substantial influence within the MDBs. In most cases, it is the
largest single contributor, with the largest vote of any member country. However, no country
has a veto and a majority vote of the executive board is required before an MDB can approve
a loan or adopt a new policy or operating procedure. The U.S., Japan, Canada, and European
Union comprise a near or actual de facto majority of the vote in all but two of the MDBs. The
European countries currently hold about 30% of the vote in the World Bank and IMF. If they
succeed in their goal of casting their vote as a block, they may likely supplant the United
States in influence in the IFIs.
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Bush Administration Policy Towards the IFIs
Administration Statements. The Bush Administration has argued, since it took
office in January 2001, that international aid to promote economic development and growth
in poor countries is an integral element of U.S. national security policy. In the National
Security Strategy document released in September 2002, the President said the “United
States is committed to a comprehensive reform agenda for making the World Bank and the
other multilateral development banks more effective in improving the lives of the world’s
poor.” He noted that “we have reversed the downward trend in U.S. contributions and
proposed an 18 percent increase in the U.S. contributions” to IDA and the African
Development Fund. “The key to raising living standards and reducing poverty around the
world is increasing productivity growth, especially in the poorest countries,” he said. The
Administration would press the MDBs, he said, to focus on activities that “increase
economic productivity, such as improvements in education, health, rule of law, and private
sector development.” Every project, every loan, every grant would be judged “by how much
it will increase productivity growth in developing countries.” The Administration would
insist, he said, that MDB programs demonstrate measurable results showing that they are
“actually making a difference in the lives of the world’s poor.” To accomplish this goal,
measurable goals and concrete benchmarks should be built into future MDB aid programs.
On April 24, 2002, then-Treasury Secretary Paul O’Neill told the House Appropriations
Committee that economic development is a “central commitment of American foreign
policy,” especially efforts to close the gap between wealth and poverty and between
opportunity and misery. He said that the MDBs are “important instruments in helping us
pursue growth and prosperity in the global economy.” They serve “vital interests of the
United States” and are “crucial and integral components” of the U.S. overall foreign
assistance effort. The Administration, he said, is pressing the MDBs to focus on projects and
programs that raise productivity. This included programs to improve health and education,
promote private enterprise, enhance the rule of law, improve public expenditure
management, accountability, and anti-corruption, and strengthen countries’ trade capacities
and investment environments.
On July 25 and September 12, 2002, Treasury Under Secretary John Taylor testified
before the House Financial Services and Senate Foreign Relations Committees on the
Administration’s policy towards the multilateral banks. He told the committees that reform
of the MDBs has been one of the highest priorities of the Bush Administration’s international
economic agenda. He identified three specific goals the Administration was pursuing: (1)
a significant increase in grant funding for the poorest countries, (2) methods for linking the
contribution of additional resources to the achievement of results, and (3) a greater focus by
the MDBs on productivity-driving activities, especially particular private sector development.
On April 30, 2003, Treasury Secretary John Snow told the House Foreign Operations
Appropriations Subcommittee that productivity growth is the key to raising living standards.
The United States has urged to MDBs to focus on projects that raise productivity, he said,
particularly health, education, private sector development, and other changes that will
remove obstacles to productivity growth by aggressively promoting good policies. He noted
that the world community had adopted a set of ambitious policy goals, such as halving by
2015 the share of the world’s population living on the equivalent of less than $1 a day. He
did not say how those goals might relate to the MDB program. He noted, however, that
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President Bush had added another goal to the world agenda in 2002 when he said that “we
ought to double the size of the world’s poorest economies within a decade.” To reach that
goal, Snow said, developing countries would need to take major policy steps to increase
economic growth rates and would need serious commitments from the donor community.
Fundamentally, he said, the development aid agencies — both bilateral and multilateral —
should “start working themselves of business” so that “countries can rely in the future on
investment, private capital and entrepreneurship instead of pledges, concessions, and debt
relief. It was not clear from Snow’s remarks whether this latter goal was an addition to the
objective of raising world aid levels in order to reduce poverty, improve infant and maternal
health, and other millennium development goals, or whether it was a substitute for them.
IDA Grants. On July 2001, President Bush proposed that the World Bank should
allocate half the funds it provides to low-income countries on grants rather than loans. This
would total about $2 billion annually. Mr. Bush said that World Bank should use the new
grant program to fund increased levels of assistance for health, education, clean water, and
similar activities. None of the other major donor countries supported his proposal. Several
(Britain, in particular) oppose it outright. Many seem to support the idea that perhaps 10%
of IDA’s future aid might be grants. The Administration said that a high level of IDA grants
will enhance productivity, ease the debt burden on poor countries, and allow closer
monitoring of program implementation and tighter measurement of results. Critics said that
the plan would “defund” the World Bank’s concessional loan program, raise confusion with
other international grant-aid programs, and diminish the value of the IDA program.
In early July 2002, the IDA donor countries agreed that between 18% and 21% of IDA
assistance during the next three years would be allocated as grants to the poorest countries.
This cleared the way for final agreement on the IDA 13 replenishment plan, which is now
before Congress. In addition to the three activities the President had mentioned, the IDA
donors agreed that grants would also be available for programs combating HIV/AIDS and
for reconstruction in post-disaster and post-conflict countries. Overall, about 20% of IDA
aid has gone for purposes identified by the President and those added by the IDA negotiators.
However, the poorest countries receiving that aid may get 100% of their new IDA receipts
in the form of grants. The Administration presented the agreement as a long-term change in
World Bank operations. Other donor countries maintain, by contrast, that it is merely a 3-
year experiment for IDA 13 and there is no commitment to continue it thereafter.
A major sticking point prompting resistance to the 50% grant proposal was the absence
of any stated mechanism for paying the future cost of grants. The cost to recipients for IDA
loans and grants is the same for the first 10 years (during the grace period for IDA loans).
Thereafter, the cost of repaying loans is spread out in small increments over a 30 year period.
The benefits from an IDA grant also accrue slowly. Countries benefit from a grant, not on
the day it is made, but on the future dates when the payments for the erstwhile loan would
have been due. Loan repayments currently provide about 40% of IDA’s usable resources (the
rest coming from donor contributions.) In 20 years, however, contributions are expected to
decline and repayments are scheduled to provide upwards of 70% of IDA’s funds. The other
IDA donors claimed that the Administration’s proposed grant program would eliminate most
of those future loan receipts, requiring either a major increase in donor contributions or major
cuts in future IDA id. They doubted that the United States and other donors would be willing
to double or triple their annual contributions in order to offset the cost (lost loan repayments)
of an IDA grant program. The IDA 13 agreement set aside money to help fund the cost of
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an expanded IDA grant program. However, a sizable gap remains. The donor countries
agreed they should meet next year to consider ways of covering that gap.
Measurable Results. The Bush Administration told other IDA donor countries,
during the IDA 13 negotiations, that the United States would be willing to increase its
contribution to IDA by up to 18% ($300 million over 3 years) if the World Bank agreed to
adopt specific steps to improve accountability and better measure the results of Bank-funded
operations. The additional funds were not intended to help offset the cost of IDA grants.
In recent years, many observers — both critics and supporters of the MDBs — have
urged the need for better procedures for measuring results. Critics have argued that many
MDB projects are failures. They note, for example, that the World Bank’s own statistics
show that a substantial share of its projects in some regions have been “unsatisfactory” and
have uncertain long-term prospects. Supporters of the MDBs reply that these charges are
overstated, that projects which fall short of the World Bank’s standard for a “satisfactory”
rating (a 10% annual return on capital) are not failures in the common sense of the term.
They also note that the long-term prospects for projects are often uncertain because of policy
problems in the borrower country or broader international economic conditions, not because
of the projects themselves. In the past decade, the MDBs have sought to improve the success
rate of their projects, though critics maintain that their efforts have not been sufficient. Some
critics believe the MDBs should put more emphasis in their programs on market forces,
liberalization, and privatization, while others insist that the MDBs should put less emphasis
on these matters if they wish to have a greater impact on the alleviation of poverty.
The $100 million increase in fiscal 2004 U.S. contributions to IDA, announced April
13, denotes the Administration’s approval of the progress made to date. (The Appropriations
Committees did not include this money in their fiscal 2004 legislation.) The announcement
came following a meeting of IDA donors on April 10 at which it was agreed that IDA had
met the targets specified earlier for enhancing its performance standards. These included the
completion of country or program reviews in about 30 countries, laying the groundwork for
future efforts to measure their progress in various areas of concern. In terms of outcomes,
the Administration found that measurable improvements were recorded in 36 countries in
primary completion rates since 2002, that measles immunization coverage had improved in
28 countries, and that (on a population-weighted basis) the cost and time required to start a
business had declined in the IDA countries.
The Administration’s efforts in this area seem to have accelerated somewhat the work
already underway within the multilateral agencies to improve their procedures for monitoring
operations and for determining the impact their programs and policies are having in their
borrower countries.
Improved Productivity. Secretaries O’Neill and Snow, Under Secretary Taylor and
others have expressed concern that productivity levels in poor countries must be raised if
progress is to be made stimulating growth and reducing poverty. Most analysts agree that
improvements in health and education levels, good governance, reduced corruption,
increased opportunities for private enterprise, and improvements in the trade capacity and
investment climate are necessary in order to raise living standard in developing countries.
However, some note that the obstacles which block progress in these areas are substantial
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and much effort and time may be needed to realize gains. Furthermore, they say, the
Administration’s emphasis on growth begs the question of income distribution..
It is unclear how the Administration’s emphasis on growth fits with the assertions by
the MDBs and their executive boards that poverty alleviation should be the MDBs’ principal
goal. During their first three decades, the MDBs took the view that rapid economic growth
was the most effective antidote to poverty. Later studies found, however, that poor people
often did not benefit much from economic growth. In many countries — particularly in those
with strong initial differences — income disparities grew apace with economic growth.
Many rural people and people lacking modern skills participated only marginally in the
growth process. Studies found that their involvement could be enhanced by programs
targeting their needs. In recent decades, the MDBs have put increased emphasis on health
and education programs, safety-net programs, poverty-alleviation programs and other
activities which directly address the specific needs of rural and low-income people. Some
analysts worry that, if the MDBs put more emphasis in the future on projects and programs
which promote growth and productivity, they will have to reduce the portion of their aid
which focuses directly on the alleviation of poverty.
The Meltzer Commission recommended in 2000 that the World Bank stop lending to
countries that have access to private capital markets. Many if not most middle-income
countries have been able to borrow some money internationally from private sources. It is
unclear, from the Secretary’s comments about greater reliance on private markets, whether
he believes that these countries should see their access to MDB loans reduced or eliminated.
In April 2001, O’Neill and other G-7 finance ministers approved a statement by the World
Bank/IMF Development Committee calling for more MDB lending to middle income
countries. The Committee noted that most of the world’s poor people live in these countries.
In 2001, Secretary O’Neill told the House Financial Services Committee that the IMF
had been “involved in a much too wide set of policies in borrowing countries.” In a speech
early in the year, he said much the same thing about the MDBs. The IFIs had gone beyond
their core responsibilities, he said. The IMF should put more emphasis on macroeconomic
issues and the MDBs should reduce their efforts not directly relevant to their development
agenda. Both should sharpen and shorten the list of conditions they attach to their loans.
Many analysts agree with O’Neill’s basic point. Still, many worry that this would require
the IMF to pay less attention to governance, corruption, military spending, and institutional
reform. Likewise, they worry, it might require the MDBs to put less emphasis on research
and activities such as the World Bank’s program to promote safe motherhood.
In recent years, the MDBs and the IMF have sought to refine and limit the numbers and
types of conditions they place on their policy reform loans. They have also put increased
emphasis on “ownership.” The IFIs have found that programs for policy reform and
institutional change will be most successful if the government and people in the recipient
country understand and support their goals. Broad domestic support must be built favoring
basic changes in government operations, national pension systems, privatization, or reform
of a country’s financial infrastructure. Without such ownership, the IFIs have found, most
reforms do not last much beyond the last payment from the IFI loan.
Most of the programs for structural and institutional reform specified by IMF loan
agreements are actually funded and supervised by the MDBs and other donor agencies. The
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IMF’s annual reviews provide an opportunity for donors to examine country progress and an
incentive for countries to move forward with their plans. Even when a country’s
macroeconomic performance has been adequate, the IMF has sometimes delayed
disbursements when it finds that countries are lagging in the implementation of MDB-funded
structural reforms. This tends to increase the impact of IMF and MDB conditionality.
Some critics question whether it is fair for the IFIs to coordinate their policies in this
manner. Other critics believe that the IMF should get out of the business of promoting long-
term structural change and focus instead on its original core macroeconomic responsibilities.
In response, supporters argue that the current practice enhances the effectiveness of both the
IMF and the MDBs. Furthermore, they say, the IMF’s capacity for promoting economic
stability in developing countries is hindered when it focuses only on short-term
macroeconomic issues. To achieve long-term macroeconomic improvements, they say,
countries also need to strengthen the institutions which manage economic policy and to
implement basic economic policy reform.
Congressional Action
Authorization Legislation
Current Status. On June 23, 2003, the Senate Foreign Relations Committee reported
the Consolidated Foreign Assistance Authorizations Act (S. 1161) which authorized (among
other things) full U.S. participation and authorizations for full U.S. contributions to the
pending MDB replenishment plans. In mid-June, the relevant subcommittee of the House
Financial Services Committee marked up MDB authorization legislation. The Senate and
House bills included specific measures aimed at increasing the transparency of the decision
making procedures of the MDBs and making more information about the activities of their
Executive Boards available to the public.
The House of Representatives approved a floor amendment on July 23 adding the MDB
authorizations and the policy language on transparency to H.R. 2800, the fiscal 2004 foreign
operations appropriations bill. This was the first time since 1977 that an authorization for
the IDA had been approved by a separate vote on the House floor and the third time since
1981 that any MDB authorizations had been approved as a separate bill or motion.
In February 2002, Congress appropriated funds in the Consolidated Appropriations
Resolution, 2003 (P.L. 108-7) to fund new U.S. contributions to IDA 13. Because the
authorization legislation has not been enacted, however, the Administration cannot pledge
U.S. participation in the full three-year IDA funding plan. Because the U.S. is not a formal
participant in the plan, the United States cannot make and IDA cannot accept the
contributions appropriated in early 2003. A one-year authorization to allow a new IDA
appropriation for fiscal 2004 would have a similar effect of blocking the actual contribution.
Asian Development Fund/IFAD. On May 1, 2002, the House approved H.R. 2604,
authorizing new $412 million U.S. contribution (over 4 years) to the Asian Development
Fund (ADF) and $30 million (over 2 years) to the International Fund for Agricultural
Development (IFAD). The bill was referred to the Senate Foreign Relations Committee. It
held hearings on this proposal, well as on replenishment proposals for the African
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Development Fund (AFDF) and IDA, on September 12 but has not reported legislation. No
new legislation has yet been introduced for the 108th Congress.
This was the secomd time since 1980 that either chamber has approved by regular order
(in a regular authorization bill) legislation authorizing new U.S. contributions to the IMF or
multilateral banks. Since 1980, all other IMF and MDB authorization measures have been
included in omnibus measures, reconciliation bills, or foreign operations appropriations bills.
In many instances, the authorization measures were placed in these bills in ways which made
amendment or deletion difficult (because of the rules governing their consideration). Some
people believe that the House action on the ADF/IFAD authorization bill signals that the
base of congressional support for IFI measures has broadened. Others believe that the IDA
13 authorization proposal will be a truer measure for the level of congressional support.
The Administration says that the ADF funding plan includes several provisions which
respond to prior congressional concerns. The ADF will allocate resources in the future on
the basis of country performance, stressing fiscal performance, good governance, and anti-
corruption measures. A plan to strengthen support for core labor standards has been
approved. An agreement has been signed with the World Bank to improve coordination and
minimize overlap and duplication. U.S. relations with the other ADF donors are somewhat
strained, however. The United States was successful during the ADF negotiations in its
efforts to achieve several important changes in ADF policies and procedures. Meanwhile,
however, the U.S. is seriously in arrears in its contributions to the last ADF replenishment.
While the other donors have largely completed their payments, the United States has yet to
pay $128 million of the $300 pledged towards the last replenishment.
As approved by the House, H.R. 2604 included several policy initiatives requiring the
Administration to seek a broad range of policy or procedural changes in IFAD and the
regional development banks. These include initiatives concerning transparency, user fees,
HIV/AIDS, dams, international terrorism, privatization of government-held industries,
arsenic in drinking water in South Asia, and opposition to any proposals that would help
reduce minimum wages below internationally recognized poverty levels. Broad support by
a substantial majority of the MDB membership will be needed if these policy initiatives are
to be put into effect. In some cases, it appears that support for these proposals by other
countries is not strong. In other cases, by contrast, it seems that some regional MDBs have
already adopted certain of these initiatives.
International Development Association. As noted earlier, representatives of the
donor countries agreed July 1 on terms for a new replenishment of the IDA. The new
replenishment would authorize $22.6 billion in new lending over the 3 years. Of this, $12.5
billion would come from donor contributions and most of the rest would be money received
as repayments for earlier IDA loans. According to World Bank documents, IDA is scheduled
to receive about $5.1 billion in loan repayments during the three years (2003-2005) of the
new replenishment plan. The rest of the IDA 13 loan funds would be borrowed ahead from
suture years. About 20% of the new money would come from the United States.
The IDA donors agreed that 18% to 21% of IDA aid during the next 3 years will in the
form of grants. They also broadened the range of activities that would be funded with grants.
(See above.) Several major policy initiatives were included in the IDA 13 plan, including
proposals to increase IDA’s impact on poverty, steps to improve project performance,
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measures to better measure the results of IDA programs, and more emphasis on private sector
development. Many of these respond to concerns voiced by the Bush Administration and by
Congress. The House Financial Services Committee held hearings on July 25 on the IDA
proposal as well as the upcoming replenishment proposal for the AFDF.
Table 1. Appropriations for Multilateral Development Banks
(Budget authority; millions of paid-in U.S. dollars)
FY2002 FY2003 FY2004 FY2004 FY2004 Conference
Final
Final
Request
House
Senate
Report
World Bank Group
Intl Bank for Reconstruction and
Development (IBRD)
—
—
—
—
—
—
Global Environment Facility
100.5
147.8
185.0
107.5
171.0 139.2
Intl Development Assoc (IDA)
792.4
850.0
977.0
850.0
976.8
913.2
Intl Finance Corp (IFC)
—
—
—
—
—
—
Multilateral Investment Guarantee
Agency (MIGA)
5.0
1.6
4.0
4.0
1.1
1.1
Intl Fund for Agric Development
20.0
15.0
15.0
15.0
15.0
15.0
Regional Development Banks
African Development Bank
5.1
5.1
5.1
5.1
5.1
5.1
African Development Fund
100.0
108.1
118.1
107.4
118.1
112.7
Asian Development Bank
—
—
—
—
—
—
Asian Development Fund
98.0
97.9
151.9
151.9
136.9
144.4
European Bank (EBRD)
35.8
35.8
35.4
35.4
35.4
35.4
Inter-American Development Bank
Ordinary Capital
—
—
—
—
—
—
IDB Fund for Special Ops (FSO)
—
—
—
—
—
—
Inter-American Investment Corp
18.0
18.4
30.9
—
0.9
—
Multilateral Investment Fund
—
24.6
32.6
25.0
30.6
25.0
N. American Development Bank
—
—
—
—
—
—
TOTAL, all MDBs
1,174.8 1,304.3
1,555.0
1,296.3 1,455.5
1.395.7
Total arrears if bill passed thus
533.2
518.0
—
—
—
—
African Development Fund. In late 2002, donor countries agreed on plans for a
new ninth replenishment of the African Development Fund (AFDF 9). The Administration
has requested an authorization of $354 million to fund U.S. contributions, which would be
appropriated over a 3- year period. No information is yet available on new policy initiatives
included in the replenishment plan. Treasury Under Secretary John Taylor told the Senate
Foreign Relations Committee in September that the African Development Bank (of which
the AFDF is a part) has made major improvements in management and information access
in the past decade. He also said the AFDB would likely play a major role in the elaboration
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of the New Partnership for African Development (NEPAD). In particular, he said, the AFDB
will take the lead in promoting regional economic integration and improved banking and
financial standards.
Authorization in the Appropriation Bill. In mid-September, the House
Appropriations Committee reported H.R. 5410, its version of the fiscal 2003 foreign
operations appropriations bill. Section 580 of that bill authorizes the appropriation of funds
for full U.S. participation in the upcoming replenishments of the African Development Fund,
Asian Development Fund, International Development Association, and International Fund
for Agricultural Development. This bill did not pass at the end of the session. The
continuing resolution passed in early 2003 did not include this provision.
Appropriations
Fiscal 2003. In January 2002, the Bush Administration requested (as part of its
budget submission) that Congress appropriate $1,437.2 million for MDB programs for
FY2003. This is the largest appropriations request for MDBs since at least FY2000. It
includes an increase in U.S. contributions to the IDA. It includes substantial funding for the
ADF and GEF, to help reduce the large arrears in payments the U.S. has accrued for those
programs. It also includes enough funding for the MIF — the small program attached to the
IDB which provides grants for microenterprise, small business, job training, and other similar
programs — to cover the U.S. arrears and prevent other countries from withdrawing their
contribution pledges. Without a U.S. payment to retire arrears, the program would possibly
be forced to close. Most countries would blame the United States for that situation. This
might have negative effects for U.S. leadership in other IFIs.
In December 2002, the House Appropriations Committee approved a bill ( H.R. 5410)
to fund foreign operations programs in fiscal 2003. It included language authorizing U.S.
participation in the IDA 13 replenishment and other pending MDB funding plans and it
appropriated $1,304 million to fund MDB programs in fiscal 2003. No final action was
taken in either chamber on this legislation, however, before the end of the 107th Congress.
On January 8, 2003, the House passed H.J.Res. 2, a continuing resolution to temporarily
fund the government until a final bill could be passed. The Senate replace the House’s
original language with provisions funding the government for through the end of the fiscal
year. In effect, the House and Senate conferenced the recently passed Senate version of
H.J.Res. 2 with H.R. 5410 from the prior year. For the multilateral banks, it approved the
appropriations figures shown in Table 1.
Fiscal 2004. The Administration requested appropriations totaling $1.555 million
for the MDBs. Table 1 (above) shows the amounts the House and Senate approved for U.S.
contributions to the MDBs for fiscal 2004 as well as the amounts that were agreed to in the
conference report for H.R. 2800. The terms of the conference report were printed in the
Congressional Record for November 25, 2003, Book II (CR H12323-12746); the funding
tables for the conference report were printed with House debate in the Congressional Record
for December 8, 2003 (CR H12766-12845). Due to the press of business at the end of the
2003 session, the conference version of H.R. 2800 was incorporated (along with other
appropriations bills) into H.R. 2673, the Consolidated Appropriations Act for Fiscal 2004.
The House approved the new consolidated appropriations measure on December 8. In the
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Senate, however, there was strong debate on some non-MDB provisions of the bill. A
cloture motion was filed on December 9. However, the vote on that motion was scheduled
for January 20, 2004, at the beginning of the next session of the 108th Congress.
Reforming the IFIs
Since the Asian Financial Crisis began in 1997, major discussions have been underway
in the IFIs and among their major member countries about possible changes in the basic
architecture of the international financial system. This includes possible shifts in the policies
and priorities of the IFIs, the relationships among them, and the relationships between the
IFIs and the private sector. The IFIs have adopted a number of policy changes aimed at
improving their operations. The IMF in particular has adopted a series of voluntary
guidelines which seek to help countries improve the stability of their financial and monetary
systems and the effectiveness of their policies. The IFIs have adopted procedures which
provide more information to the public on their policies and on conditions in their member
countries. However, few major alterations have occurred in the basic structure or function
of the IFIs. A broad consensus of the membership is necessary to effect basic change. The
leading member countries disagree about the kinds of change which might be needed.
Since at least 1998, leading Members of Congress have tried through legislation to
effect fundamental changes in the structure and the policies of the IFIs. Several strong
recommendations were included in the 1998 legislation approving U.S. participation in the
most recent increase in IMF quota resources and in the fiscal 2001 foreign operations
appropriations act. It is important to note, in this regard, that the United States cannot make
the IFIs adopt changes in their policies and procedures. The United States does not have the
votes to make the IFIs take action and (except for the IMF) it does not have enough votes to
block IFI funding plans from going into effect over its objection. Change in the IFIs must
be accomplished by persuading other countries that the U.S. proposals are good ideas that
they also should support. If the G-7 countries agree on a proposal they have (or can
influence) enough votes to put it into effect. However, most other G-7 countries do not agree
with many of the initiatives in recent U.S. legislation or U.S. policy initiatives.
The 1998 IMF legislation created a congressionally-appointed commission to review
and make recommendations regarding change in the basic structure of the IFIs. The
commission (headed by Professor Alan Meltzer) released its recommendation in March
2000. The Clinton Administration agreed with some of the Meltzer Commission’s
proposals and it opposed others. The Commission said countries should qualify in advance
by adopting major reforms in their financial reporting, financial institutions, and government
budgetary practices. The Administration said countries should be able to borrow, even if
they do not meet these standards beforehand, and the IMF should use its conditionality to
bring about needed reforms. The Commission said the IMF should charge penalty rates of
interest, above existing market rates. The Administration said this would be
counterproductive. In 2001, Treasury Secretary O’Neill filed a report with Congress that
was also strongly critical of the Meltzer Commission’s policy recommendations for the IFIs.
The Meltzer Commission said the World Bank should lend only to the poorest countries
and it should stop lending to countries which have access to private capital. It should also
devolve most of its loan functions to the regional MDBs, becoming a grant-making
institution focused on global public goods. The Clinton Administration said the World Bank
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should still make loans to countries which have some access to private capital but it should
take care that its loans not supplant the private sector. It said the Bank should focus
primarily on poverty alleviation, social programs, and institutional or policy reform. Both the
Administration and commission agreed that the IFIs should forgive substantial amounts of
debt owed them by the poorest countries. They also agreed that the United States and other
donors should substantially increase their contributions for MDB concessional aid. The Bush
Administration’s views were discussed at the beginning of this issue brief.
The FY2001 appropriations act included several provisions which required the IFIs to
consider possible reforms (see below). However, they did not require that the IFIs must
implement these reforms before the U.S. could contribute any money (as was proposed —
but ultimately not enacted — in 1998). Rather, they say the Secretary of the Treasury must
advocate certain reforms in the IFIs and report to Congress any steps they have taken towards
achieving those goals. Congress did not adopt any language in the FY2002 appropriations
act seeking major reforms in the IFIs.
Section 588 of the FY2002 law said that 10% of the money appropriated for each IFI
shall be withheld and not contributed until the Secretary of the Treasury certifies that it has
adopted certain procurement and management reforms. These include procedures for
requiring annual independent audits of all new investment loans, for requiring independent
audits of the central banks of all countries which borrow from the IMF, for assessing the
risks of corruption in borrower countries before they get new loans, for establishing new
transparency and anti-corruption procedures in borrower countries, and for creating a new
fraud and corruption investigative unit in each IFI. The Secretary must report on steps the
IMF has taken to achieve these goals.
The Act directed the Secretary to seek stronger procedures in the MDBs improving their
loan monitoring procedures in order to limit corruption in borrower countries, to strengthen
governance and reduce bribery and corruption in those countries, and to punish any corrupt
practices by MDB staff. It required GAO to report annually regarding the adequacy of IFI
audit procedures. It directed the U.S. representatives at the IFIs to oppose any loans for
primary education or primary healthcare if the projects imposed user fees on people receiving
assistance from them. It also said that the Secretary of the Treasury should seek agreement
with other countries that any new aid which IDA provides to countries receiving HIPC debt
relief (see below) should be provided through grants rather than new concessional loans.
Section 801 said the MDBs should adopt a series of new rules or guidelines. In
particular, the banks should require that all new lending to a country would cease if it used
loan funds for purposes other than those originally intended. The MDBs should adopt new
procedures to prevent their loans from supplanting private financing. The banks should not
disburse money if a borrower country has not adopted the specific policy reforms mandated
by a loan agreement. The MDBs should also adopt new standards for measuring the progress
countries are making towards graduation from eligibility for concessional loans. The new
law said that the World Bank should adopt policies aimed at minimizing the number of
projects that would displace a population involuntarily or would be detrimental to the people
or culture of the people to which the displaced population would be moved. It also said that
the IMF should adopt policies which would vigorously promote open markets and trade
liberalization in its borrower countries.
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Section 804 said that it would be the policy of the United States to work for the
adoption of reforms requiring the IMF to lend mainly for short-term BOP finance. Medium-
term loans should be available only in certain circumstances and the IMF should charge a
premium on most of its loans in order to discourage use and encourage countries to rely more
on private sector finance.
Most countries seem willing to consider proposals for reform on their merits, but few
appear willing to acquiesce to unilateral demands. If the United States had tried to made the
implementation of reforms a prior condition to any U.S. payment, other major IFI member
countries would have likely objected. In 2001, for example, Senators Gramm and Helms
sought to make U.S. contributions to HIPC conditional on the IFIs adopting major changes
in their policies and procedures. Congress ultimately chose not to adopt that language.
Many analysts doubt that the goals of their initiative would have been realized even if it had
been adopted into U.S. law. Few countries seem willing to accept broad permanent changes
in the IFIs simply in order to get a modest one-year HIPC contribution from the United
States. Major reform in the IFIs will come only when there is a broad consensus on the part
of most countries that particular changes are more desirable than the status quo. Many of
the proposals currently being considered in the United States and other countries are not
mutually compatible. A major challenge facing the United States in future years will be the
development of such a consensus in support of policy changes which the Administration and
Congress will support and other countries will find acceptable.
MDBs and Developing Country Debt
Many of the poorest MDB borrowers have had serious difficulty servicing their
international debts in recent years. Estimates suggest that the 41 most heavily indebted poor
countries (HIPCs) pay only about 40% of their annual debt service obligations. As a whole,
the total foreign debt of the HIPC countries was nearly 122% the size of their combined
Gross National Product (GNP). For many countries, the share is even higher. Over half this
debt was owed to bilateral lenders and 35% was owed to MDBs. The MDBs are the only
lenders who are being paid (and the only ones making new loans). In 1998, for instance,
$1.8 billion, or half of HIPC country repayment of principal went to multilateral creditors.
Only $0.8 billion was paid to bilateral lenders. The HIPC countries are more than $15 billion
in arrears to their creditors for unpaid interest due on their long-term debt.
During the height of the international debt crisis in the 1980s, the United States and
other major countries used the MDBs as principal vehicles for helping debtor countries. The
major concern at the time focused on heavily-indebted middle-income countries, who owed
most of their debt to private lenders. Many analysts feared that the stability of the world
financial system was at risk. In 1985, then-Treasury Secretary Baker said the IMF, World
Bank, and IDB should lend $20 billion over several years (along with $20 billion more from
commercial lenders) to help the 17 largest middle-income debtors cope with their problems.
In 1989, then-Treasury Secretary Brady said the MDBs and IMF should help middle-income
countries finance voluntary debt-reduction plans involving commercial creditors. Between
1989 and 1994, the World Bank and other multilateral agencies lent $7.9 billion to 12
middle-income countries, helping them negotiate a $63 billion forgiveness of the $193
billion owed to these lenders. Similarly, the IDA Debt Reduction Facility helped 7
low-income countries extinguish through debt buy-back schemes (at about 14 cents to the
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dollar) $815 million owed to commercial creditors. IDA has also made loans (via its “Fifth
Dimension” program) to help poor countries finance payments for old IBRD-rate loans.
In October 1996, the World Bank and IMF approved a plan offering debt relief to
heavily-indebted poor countries (HIPC). It aims to reduce the debt burden of these countries
to “sustainable” levels — i.e., a debt load equal to 200-250% the value of a country’s annual
exports — in two stages. First, the MDBs would be ready to forgive up to 90% of the debt
owed them by HIPC countries and they asked bilateral and commercial creditors to provide
the same. (Bilateral creditors said that 80% was the most they would do; private creditors
have not volunteered to participate.) Meanwhile, the debtor country would pursue a 3-year
program of economic policy reform. Second, at the end of that period, the Bank and Fund
determine if the country’s debt burden was “sustainable.” If not, it would be declared
eligible for HIPC terms, and after a period of up to 3 more years, the Bank would retire
enough debt owed it to bring the country’s debt burden to a manageable level. The Bank
would reimburse itself for the retired debt with money set aside from its annual net income
or contributed by individual donor countries.
Critics argued that the plan’s criteria for eligibility are too restrictive and the period of
time it took to qualify for possible debt relief was too long. In June 2000, at the Cologne
Economic Summit, G-7 leaders agreed that HIPC should be expanded and the time period
shortened. At the World Bank annual meeting in October, Bank member countries agreed
that the HIPC program should seek to qualify 20 countries for debt relief by the end of the
year. The United States insisted that standards should not be weakened and countries should
still be required to undertake major market-oriented economic reforms in order to qualify.
World Bank officials estimate that the G-7 initiative would double — to $4 billion — Bank
expenses and represent a commitment they could not meet out of existing resources. Some
critics assert, however, that the Bank could provide more debt relief if it were willing to use
IDA loan resources for this purpose. (For more information on the HIPC program, see CRS
Report RL30214, Debt Reduction: Initiatives for the Most Heavily Indebted Poor Countries.
For a discussion of African debt issues, see CRS Report RS21329, African Debt to the
United States and Multilateral Agencies.)
In 2000, the Administration asked Congress to authorize a $600 million contribution
to the HIPC trust fund and to appropriate funds for FY2000, FY2001, FY2002, and FY2003.
The Senate Foreign Relations Committee included this authorization in its bill, S. 2382,
which also included authority for the U.S. representative at the IMF to vote for a resolution
allowing the IMF to use for HIPC the “profits” realized last year when it sold 5 million
ounces of gold. Authority to use income from an earlier sale of 9 million ounces was
approved in 1999. Congress included authority for the HIPC trust fund contribution and use
of the gold proceeds in the final FY2001 foreign operations appropriations act. It
appropriated (in Title II) $225 million for contribution to the HIPC trust fund in FY2001 and
(in Title VI) a supplemental $210 million for contribution in FY2000. In the FY2002 foreign
operations appropriations act, Congress appropriated another $224 million for HIPC.
The money for HIPC carries several conditions. The Secretary of the Treasury may not
disburse funds to HIPC for the benefit of any country that engages in a consistent pattern of
human rights violations or in international military or civil conflicts which would undermine
its ability to develop and institute effective measures for poverty-alleviation. The Secretary
may not disburse any money to HIPC for the benefit of Sudan or Burma unless
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democratically elected governments has taken office in these countries. U.S. funds for HIPC
debt relief can only be used for assistance to countries which agree not to accept market-rate
loans from any IFIs that received debt relief funds from the HIPC trust fund. The 2002 act
specified that U.S. contributions to the HIPC trust fund could only be used to pay off loans
owed to the IDB, AFDB, AFDF, and Central American Bank for Economic Integration
(CABEI). Countries could only receive U.S. funds through the HIPC trust fund if they
agreed not to accept any market-rate loans from IFIs that accorded them HIPC debt relief for
two years and only if they documented their commitment to direct the budgetary resources
that would have been otherwise used for international debt payments towards programs to
alleviate poverty and promote economic growth.
Unlike most other IFI accounts, the HIPC trust fund does not mix together the money
contributed by donor countries. Rather, the funds from each donor are held separately and
can only be used with the donor’s permission. Therefore, despite contrary precedents in all
other IFI accounts, the United States can control the way its contributions to HIPC are used.
In 2002, the World Bank announced, with the support of its executive board, that it
would no longer be able to fund the costs of IDA debt forgiveness from its own resources
(there being other requirements for those funds.) In the future, new contributions from donor
countries (some $400-600 million yearly) will be needed to offset lost IDA repayments.
Otherwise, IDA will need to start shrinking the size of its future loan program by that amount
yearly. IDA uses loan repayments to fund a major share of its new loans.
MDBs and Poverty
Initially, the MDBs’ main strategy for the alleviation of poverty emphasized the
efficient use of resources to promote growth and raise income levels in borrower countries.
During the 1970s and 1980s, the MDBs put increased emphasis on projects designed to target
benefits directly to needy persons. In the past decade, however, more emphasis is again
being given activities that promote growth. In 1991, the World Bank adopted a two-part
strategy aimed at eliminating the worst forms of poverty in developing countries by the year
2000. Part one stressed the need for increased growth. The Bank would encourage countries
to adopt incentives and policies that encourage broad-based economic growth and it would
finance the construction of infrastructure and other necessary facilities. Part two said that
growth must be supplemented with clearly defined poverty-alleviation programs, to ensure
that the poor both gained from and contributed to growth. The Bank said the volume and
composition of its lending would be linked to the borrowers’ own efforts to reduce poverty.
In 1993, the Bank announced plans for cutting in half in the next 20 years the share of the
world’s population facing hunger. It also said it would put more emphasis (via
microenterprise lending) on activities designed to meet the credit needs of poor borrowers
who are normally not considered creditworthy. The Bank has acted to expand its support for
microenterprise. The World Bank annual report for 1994 (the first issued after the 1993
announcement) did not mention the goal of cutting the level of world hunger in half and the
issue has not been raised in subsequent annual reports.
There is considerable debate whether the MDBs are doing enough to fight poverty.
Today, the controversy seems to focus less on whether they are funding enough anti- poverty
projects and more on whether the gains from these loans are offset by the possible injury
done to the poor by MDB adjustment programs. Many critics say U.S. contributions should
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be cut as long as the MDBs continue to promote adjustment and as long as they continue to
support top-down decision-making procedures that give average citizens in borrower
countries little say in the policy process.
The growth and poverty effects of economic reform are complex issues. Among the
strongest critics are non-governmental organizations (NGOs), which argue that adjustment
programs encourage borrower countries to change policies and reduce spending on programs
that benefit needy people. A coalition of NGOs announced plans in 1994 (the Fifty Years
is Enough campaign) to seek cuts in U.S. contributions to the World Bank until it altered its
approach to policy reform and put more emphasis on poverty alleviation. Proponents of
economic reform argue that countries in economic trouble may have few real alternatives but
to reform their policies and to change the structure of their economies. They say that, over
the long run, poor people can be hurt more by inflation and other effects of bad economic
policy than they are by the effects of policy reform. They say the burden of adjustment
actually falls most heavily on the middle class and government employees, not the poor. The
MDBs have increased their funding for “safety-net” programs to help mitigate any negative
effects their economic reform programs may have on the poor during the transition process.
Congress has passed several laws directing the USEDs to urge the banks to put more
emphasis on poverty alleviation. In 1989, for example, it directed the U.S. representatives
at the MDBs to propose that poverty alleviation be made a key goal of MDB operations. It
also said the banks should help their borrowers develop national strategies aimed at
eliminating the causes of poverty and they should give preference in their lending to
countries undertaking effective action in that regard. In 1990, Congress directed the USEDs
to encourage more lending for population, health, and nutrition programs in borrower
countries. MDB and U.S. officials say the banks have been responsive to these congressional
concerns. The House Banking subcommittee included a number of initiatives to promote
poverty alleviation in its 1997 authorization legislation (H.R. 1488).
CRS-16
CRS Issue Brief for Congress
Received through the CRS Web
Multilateral Development Banks:
Issues for the 108th Congress
Updated December 19, 2003
Jonathan E. Sanford and Martin A. Weiss
Foreign Affairs, Defense and Trade Division
Congressional Research Service ˜ The Library of Congress
CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Introduction
U.S. Participation in the Multilateral Banks
Bush Administration Policy Towards the IFIs
Administration Statements
IDA Grants
Measurable Results
Improved Productivity
Congressional Action
Authorization Legislation
Current Status
Asian Development Fund/IFAD
International Development Association
African Development Fund
Authorization in the Appropriation Bill
Appropriations
Fiscal 2003
Senate Appropriations
House Appropriations
Reforming the IFIs
MDBs and Developing Country Debt
MDBs and Poverty
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Multilateral Development Banks: Issues for the 108th Congress
SUMMARY
The U.S. is a member of five multilateral
arrears in the MDBs to $322 million.
development banks (MDBs): the World Bank,
Inter-American Development Bank (IDB),
In mid-2003, the House authorized (in
Asian Development Bank (ADB), African
the pending FY2004 appropriations bill)
Development Bank (AFDB), and European
legislation authorizing U.S. participation in
Bank for Reconstruction and Development
several pending MDB funding plans. Promi-
(EBRD). It also belongs to two related orga-
nent among these is an authorization for $2.85
nizations, the North American Development
billion (to be appropriated over 3 years, for the
Bank (NADB) and the International Fund for
International Development Association (IDA),
Agricultural Development (IFAD).
the World Bank’s concessional aid facility.
The new program for IDA grants will not
As a group, the MDBs are the largest
become effective until the U.S. approves this
source of development aid for middle- and
enabling legislation. Also pending are
low-income countries. They lent or invested
authorizations of $354 million (over 3 years)
nearly $40 billion in 2000, four-fifths of it at
for the African Development Fund and $412
market-related terms and the rest on
million (over 4 years for the Asian Develop-
concessional terms. The World Bank ac-
ment Fund. The United States is in arrears
counted for half of all MDB aid and 62% of
$322 million in its payments to MDBs. The
all MDB concessional aid in 1997.
U.S. is one year behind other countries in its
actions to authorize these contributions.
In the World Bank and most regional
MDBs, the U.S., European Union, and Japan
The MDBs have taken several initiatives
control over half of the vote. U.S. participa-
to help middle- and low-income countries deal
tion in the MDBs is managed by the Treasury
with their foreign debt problems. The MDBs
Department. Congress has substantial influ-
have traditionally made poverty alleviation
ence over the direction and focus of U.S.
their first priority goal, though some critics
policy. The MDB market-based loan windows
say they should target more of their aid for
have quasi-permanent funding authority. By
direct poverty alleviation programs and for
contrast, the concessional loan windows
encouraging private sector growth. The IMF
require periodic contributions by donor coun-
and MDBs have also increased substantially
tries in order to continue operations.
their transparency and the amount of informa-
tion they provide to the public on their opera-
In February 2003, Congress approved
tions. Many believe this will make them more
legislation appropriating $1.304 billion for
effective. Critics say that more data should be
contributions to MDB programs. The Admini-
available. Some borrowers believe they are
stration had sought $1.437 billion. With this
being forced to reveal too much. Countries
legislation, the United States is $518 million
may bar the MDBs from releasing information
in arrears on U.S. arrears to MDB programs
about themselves.
For fiscal 2004, the Administration sought
$1,555 million for MDB programs. If fully
appropriated, this would reduce the U.S.
Congressional Research Service ˜ The Library of Congress
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MOST RECENT DEVELOPMENTS
House and Senate conferees agreed November 21, 2003 on a conference report for
the fiscal 2004 foreign operations appropriations bill (H.R. 2800). This included agreed
language authorizing U.S. participation in pending MDB funding plans and the appropriation
of funds for MDB programs for fiscal 2004. Due to the press of business at the end of the
session, however, the agreed language for H.R. 2800 was rolled together with other
appropriation bills into H.R. 2673, the Fiscal 2004 Consolidated Appropriations bill (H.R.
2673.). The House agreed on December 8 to approve the consolidated appropriations bill.
In the Senate, a cloture motion was filed on December 9 to close debate on the bill and a vote
on the cloture motion has been scheduled for January 20, 2004. . A vote on that cloture
motion was scheduled for January agreed to postpone consideration of the cloture until
January 20, 2004.
BACKGROUND AND ANALYSIS
Introduction
For 50 years, the MDBs have been major forums for economic cooperation and key
vehicles through which the United States and other countries have channeled development
aid. The cost of U.S. participation in them has been controversial. The Banks have also
come under substantial criticism — from many different perspectives — for presumed
weaknesses or errors in their policies and operations. In recent years, there has been much
discussion in public and official circles about possible changes in the architecture of the
international financial system, particularly the relationship between the MDBs and the
International Monetary Fund (IMF). For information on specific issues, see: CRS Report
RL31136,World Bank: IDA Loans or IDA Grants? and CRS Report RL31418, World Bank:
Funding IDA’s Assistance Program; Russia and the International Financial Institutions:
From Special Case to a Normal Country, in the Joint Economic Committee’s publication
(S.Prt. 107-50) Russia’s Uncertain Economic Future (available from author).
U.S. Participation in the Multilateral Banks
The MDBs are international agencies that finance development programs in poor
countries using money borrowed in world capital markets or contributed by developed
countries. Run by their own managements and staffs of international civil servants, they are
supervised by boards of executive directors and boards of governors selected by member
country governments. Voting shares are weighted on the basis of countries’ contributions.
The IMF is a monetary institution, not a development bank. Still, it lends mainly to
developing countries and its policies often affect economic conditions in borrower countries.
The United States belongs to the World Bank and four regional banks: the African
Development Bank (AFDB), Asian Development Bank (ADB), European Bank for
Reconstruction and Development (EBRD), and Inter-American Development Bank (IDB).
It also belongs to two other institutions, the North American Development Bank (NADB)
and the International Fund for Agricultural Development (IFAD). In 1999, they lent or
invested over $50 billion — 82% on market-based terms and the rest on concessional terms
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(low interest rates, long repayment periods) to the poorest countries. The World Bank
provided 58% of the total and 77%of the concessional funds.
Member countries monitor activities of the MDBs on two levels: through boards of
governors (which usually meet annually) and executive boards (which are in continuous
session). Funds cannot be raised and loans and policies cannot be approved without the
consent of MDB executive boards. For additional background information on the MDBs, see
CRS Report RS20793, Multilateral Development Banks: Basic Background.
The President has the ultimate authority under U.S. law to direct U.S. policy and
instruct the U.S. representatives at the MDBs. This authority has been delegated to the
Secretary of the Treasury. The Assistant Secretary for International Affairs manages
day-to-day U.S. participation with the help of a professional staff of 20 persons. With the
advice and consent of the Senate, the President names individuals to represent the United
States on the executive boards of the MDBs. Treasury coordinates U.S. participation in the
MDBs through two interagency panels. The Working Group on Multilateral Assistance
(WGMA) reviews all prospective MDB loans and policy documents on an ongoing basis.
The National Advisory Council on International Monetary and Financial Policies (NAC) has
some residual responsibilities in this area. It is also responsible (by law) for issuing an
annual report discussing U.S. policy and the recent activities of the IFIs. The last report (for
fiscal 1998) was filed in 2000. The next most recent, for fiscal 1992, was filed in 1995.
Congress has a major role in the formulation of U.S. policy towards the IFIs. Congress
must give its consent by law before the United States may agree to participate in any new IFI
funding agreements. The Senate has advise and consent authority over all persons nominated
to major policy-making roles in the executive branch. On many occasions, Congress has
enacted legislation specifying what U.S. policy shall be in the IFIs and how the U.S.
executive directors at these institutions shall vote and the objectives they shall pursue.
Congress has also frequently made specific suggestions to the Administration through Sense
of Congress resolutions or language in committee reports accompanying legislation
suggesting specific goals and priorities the United States ought to emphasize in the IFIs.
For more information on the procedures governing U.S. participation in the MDBs, see
CRS Report RS20791, Multilateral Development Banks: Procedures for U.S. Participation.
For information about U.S. contributions, see CRS Report RS20792, Multilateral
Development Banks: U.S. Contributions FY1990-2001. For a discussion of development
issues, see CRS Report RL31662, Developing Countries: Definitions, Concepts and
Comparisons. See also CRS Report RS20329, African Development Bank and Fund and
CRS Report RS21437 The Asian Development Bank .
The United States has substantial influence within the MDBs. In most cases, it is the
largest single contributor, with the largest vote of any member country. However, no country
has a veto and a majority vote of the executive board is required before an MDB can approve
a loan or adopt a new policy or operating procedure. The U.S., Japan, Canada, and European
Union comprise a near or actual de facto majority of the vote in all but two of the MDBs. The
European countries currently hold about 30% of the vote in the World Bank and IMF. If they
succeed in their goal of casting their vote as a block, they may likely supplant the United
States in influence in the IFIs.
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Bush Administration Policy Towards the IFIs
Administration Statements. The Bush Administration has argued, since it took
office in January 2001, that international aid to promote economic development and growth
in poor countries is an integral element of U.S. national security policy. In the National
Security Strategy document released in September 2002, the President said the “United
States is committed to a comprehensive reform agenda for making the World Bank and the
other multilateral development banks more effective in improving the lives of the world’s
poor.” He noted that “we have reversed the downward trend in U.S. contributions and
proposed an 18 percent increase in the U.S. contributions” to IDA and the African
Development Fund. “The key to raising living standards and reducing poverty around the
world is increasing productivity growth, especially in the poorest countries,” he said. The
Administration would press the MDBs, he said, to focus on activities that “increase
economic productivity, such as improvements in education, health, rule of law, and private
sector development.” Every project, every loan, every grant would be judged “by how much
it will increase productivity growth in developing countries.” The Administration would
insist, he said, that MDB programs demonstrate measurable results showing that they are
“actually making a difference in the lives of the world’s poor.” To accomplish this goal,
measurable goals and concrete benchmarks should be built into future MDB aid programs.
On April 24, 2002, then-Treasury Secretary Paul O’Neill told the House Appropriations
Committee that economic development is a “central commitment of American foreign
policy,” especially efforts to close the gap between wealth and poverty and between
opportunity and misery. He said that the MDBs are “important instruments in helping us
pursue growth and prosperity in the global economy.” They serve “vital interests of the
United States” and are “crucial and integral components” of the U.S. overall foreign
assistance effort. The Administration, he said, is pressing the MDBs to focus on projects and
programs that raise productivity. This included programs to improve health and education,
promote private enterprise, enhance the rule of law, improve public expenditure
management, accountability, and anti-corruption, and strengthen countries’ trade capacities
and investment environments.
On July 25 and September 12, 2002, Treasury Under Secretary John Taylor testified
before the House Financial Services and Senate Foreign Relations Committees on the
Administration’s policy towards the multilateral banks. He told the committees that reform
of the MDBs has been one of the highest priorities of the Bush Administration’s international
economic agenda. He identified three specific goals the Administration was pursuing: (1)
a significant increase in grant funding for the poorest countries, (2) methods for linking the
contribution of additional resources to the achievement of results, and (3) a greater focus by
the MDBs on productivity-driving activities, especially particular private sector development.
On April 30, 2003, Treasury Secretary John Snow told the House Foreign Operations
Appropriations Subcommittee that productivity growth is the key to raising living standards.
The United States has urged to MDBs to focus on projects that raise productivity, he said,
particularly health, education, private sector development, and other changes that will
remove obstacles to productivity growth by aggressively promoting good policies. He noted
that the world community had adopted a set of ambitious policy goals, such as halving by
2015 the share of the world’s population living on the equivalent of less than $1 a day. He
did not say how those goals might relate to the MDB program. He noted, however, that
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President Bush had added another goal to the world agenda in 2002 when he said that “we
ought to double the size of the world’s poorest economies within a decade.” To reach that
goal, Snow said, developing countries would need to take major policy steps to increase
economic growth rates and would need serious commitments from the donor community.
Fundamentally, he said, the development aid agencies — both bilateral and multilateral —
should “start working themselves of business” so that “countries can rely in the future on
investment, private capital and entrepreneurship instead of pledges, concessions, and debt
relief. It was not clear from Snow’s remarks whether this latter goal was an addition to the
objective of raising world aid levels in order to reduce poverty, improve infant and maternal
health, and other millennium development goals, or whether it was a substitute for them.
IDA Grants. On July 2001, President Bush proposed that the World Bank should
allocate half the funds it provides to low-income countries on grants rather than loans. This
would total about $2 billion annually. Mr. Bush said that World Bank should use the new
grant program to fund increased levels of assistance for health, education, clean water, and
similar activities. None of the other major donor countries supported his proposal. Several
(Britain, in particular) oppose it outright. Many seem to support the idea that perhaps 10%
of IDA’s future aid might be grants. The Administration said that a high level of IDA grants
will enhance productivity, ease the debt burden on poor countries, and allow closer
monitoring of program implementation and tighter measurement of results. Critics said that
the plan would “defund” the World Bank’s concessional loan program, raise confusion with
other international grant-aid programs, and diminish the value of the IDA program.
In early July 2002, the IDA donor countries agreed that between 18% and 21% of IDA
assistance during the next three years would be allocated as grants to the poorest countries.
This cleared the way for final agreement on the IDA 13 replenishment plan, which is now
before Congress. In addition to the three activities the President had mentioned, the IDA
donors agreed that grants would also be available for programs combating HIV/AIDS and
for reconstruction in post-disaster and post-conflict countries. Overall, about 20% of IDA
aid has gone for purposes identified by the President and those added by the IDA negotiators.
However, the poorest countries receiving that aid may get 100% of their new IDA receipts
in the form of grants. The Administration presented the agreement as a long-term change in
World Bank operations. Other donor countries maintain, by contrast, that it is merely a 3-
year experiment for IDA 13 and there is no commitment to continue it thereafter.
A major sticking point prompting resistance to the 50% grant proposal was the absence
of any stated mechanism for paying the future cost of grants. The cost to recipients for IDA
loans and grants is the same for the first 10 years (during the grace period for IDA loans).
Thereafter, the cost of repaying loans is spread out in small increments over a 30 year period.
The benefits from an IDA grant also accrue slowly. Countries benefit from a grant, not on
the day it is made, but on the future dates when the payments for the erstwhile loan would
have been due. Loan repayments currently provide about 40% of IDA’s usable resources (the
rest coming from donor contributions.) In 20 years, however, contributions are expected to
decline and repayments are scheduled to provide upwards of 70% of IDA’s funds. The other
IDA donors claimed that the Administration’s proposed grant program would eliminate most
of those future loan receipts, requiring either a major increase in donor contributions or major
cuts in future IDA id. They doubted that the United States and other donors would be willing
to double or triple their annual contributions in order to offset the cost (lost loan repayments)
of an IDA grant program. The IDA 13 agreement set aside money to help fund the cost of
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an expanded IDA grant program. However, a sizable gap remains. The donor countries
agreed they should meet next year to consider ways of covering that gap.
Measurable Results. The Bush Administration told other IDA donor countries,
during the IDA 13 negotiations, that the United States would be willing to increase its
contribution to IDA by up to 18% ($300 million over 3 years) if the World Bank agreed to
adopt specific steps to improve accountability and better measure the results of Bank-funded
operations. The additional funds were not intended to help offset the cost of IDA grants.
In recent years, many observers — both critics and supporters of the MDBs — have
urged the need for better procedures for measuring results. Critics have argued that many
MDB projects are failures. They note, for example, that the World Bank’s own statistics
show that a substantial share of its projects in some regions have been “unsatisfactory” and
have uncertain long-term prospects. Supporters of the MDBs reply that these charges are
overstated, that projects which fall short of the World Bank’s standard for a “satisfactory”
rating (a 10% annual return on capital) are not failures in the common sense of the term.
They also note that the long-term prospects for projects are often uncertain because of policy
problems in the borrower country or broader international economic conditions, not because
of the projects themselves. In the past decade, the MDBs have sought to improve the success
rate of their projects, though critics maintain that their efforts have not been sufficient. Some
critics believe the MDBs should put more emphasis in their programs on market forces,
liberalization, and privatization, while others insist that the MDBs should put less emphasis
on these matters if they wish to have a greater impact on the alleviation of poverty.
The $100 million increase in fiscal 2004 U.S. contributions to IDA, announced April
13, denotes the Administration’s approval of the progress made to date. (The Appropriations
Committees did not include this money in their fiscal 2004 legislation.) The announcement
came following a meeting of IDA donors on April 10 at which it was agreed that IDA had
met the targets specified earlier for enhancing its performance standards. These included the
completion of country or program reviews in about 30 countries, laying the groundwork for
future efforts to measure their progress in various areas of concern. In terms of outcomes,
the Administration found that measurable improvements were recorded in 36 countries in
primary completion rates since 2002, that measles immunization coverage had improved in
28 countries, and that (on a population-weighted basis) the cost and time required to start a
business had declined in the IDA countries.
The Administration’s efforts in this area seem to have accelerated somewhat the work
already underway within the multilateral agencies to improve their procedures for monitoring
operations and for determining the impact their programs and policies are having in their
borrower countries.
Improved Productivity. Secretaries O’Neill and Snow, Under Secretary Taylor and
others have expressed concern that productivity levels in poor countries must be raised if
progress is to be made stimulating growth and reducing poverty. Most analysts agree that
improvements in health and education levels, good governance, reduced corruption,
increased opportunities for private enterprise, and improvements in the trade capacity and
investment climate are necessary in order to raise living standard in developing countries.
However, some note that the obstacles which block progress in these areas are substantial
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and much effort and time may be needed to realize gains. Furthermore, they say, the
Administration’s emphasis on growth begs the question of income distribution..
It is unclear how the Administration’s emphasis on growth fits with the assertions by
the MDBs and their executive boards that poverty alleviation should be the MDBs’ principal
goal. During their first three decades, the MDBs took the view that rapid economic growth
was the most effective antidote to poverty. Later studies found, however, that poor people
often did not benefit much from economic growth. In many countries — particularly in those
with strong initial differences — income disparities grew apace with economic growth.
Many rural people and people lacking modern skills participated only marginally in the
growth process. Studies found that their involvement could be enhanced by programs
targeting their needs. In recent decades, the MDBs have put increased emphasis on health
and education programs, safety-net programs, poverty-alleviation programs and other
activities which directly address the specific needs of rural and low-income people. Some
analysts worry that, if the MDBs put more emphasis in the future on projects and programs
which promote growth and productivity, they will have to reduce the portion of their aid
which focuses directly on the alleviation of poverty.
The Meltzer Commission recommended in 2000 that the World Bank stop lending to
countries that have access to private capital markets. Many if not most middle-income
countries have been able to borrow some money internationally from private sources. It is
unclear, from the Secretary’s comments about greater reliance on private markets, whether
he believes that these countries should see their access to MDB loans reduced or eliminated.
In April 2001, O’Neill and other G-7 finance ministers approved a statement by the World
Bank/IMF Development Committee calling for more MDB lending to middle income
countries. The Committee noted that most of the world’s poor people live in these countries.
In 2001, Secretary O’Neill told the House Financial Services Committee that the IMF
had been “involved in a much too wide set of policies in borrowing countries.” In a speech
early in the year, he said much the same thing about the MDBs. The IFIs had gone beyond
their core responsibilities, he said. The IMF should put more emphasis on macroeconomic
issues and the MDBs should reduce their efforts not directly relevant to their development
agenda. Both should sharpen and shorten the list of conditions they attach to their loans.
Many analysts agree with O’Neill’s basic point. Still, many worry that this would require
the IMF to pay less attention to governance, corruption, military spending, and institutional
reform. Likewise, they worry, it might require the MDBs to put less emphasis on research
and activities such as the World Bank’s program to promote safe motherhood.
In recent years, the MDBs and the IMF have sought to refine and limit the numbers and
types of conditions they place on their policy reform loans. They have also put increased
emphasis on “ownership.” The IFIs have found that programs for policy reform and
institutional change will be most successful if the government and people in the recipient
country understand and support their goals. Broad domestic support must be built favoring
basic changes in government operations, national pension systems, privatization, or reform
of a country’s financial infrastructure. Without such ownership, the IFIs have found, most
reforms do not last much beyond the last payment from the IFI loan.
Most of the programs for structural and institutional reform specified by IMF loan
agreements are actually funded and supervised by the MDBs and other donor agencies. The
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IMF’s annual reviews provide an opportunity for donors to examine country progress and an
incentive for countries to move forward with their plans. Even when a country’s
macroeconomic performance has been adequate, the IMF has sometimes delayed
disbursements when it finds that countries are lagging in the implementation of MDB-funded
structural reforms. This tends to increase the impact of IMF and MDB conditionality.
Some critics question whether it is fair for the IFIs to coordinate their policies in this
manner. Other critics believe that the IMF should get out of the business of promoting long-
term structural change and focus instead on its original core macroeconomic responsibilities.
In response, supporters argue that the current practice enhances the effectiveness of both the
IMF and the MDBs. Furthermore, they say, the IMF’s capacity for promoting economic
stability in developing countries is hindered when it focuses only on short-term
macroeconomic issues. To achieve long-term macroeconomic improvements, they say,
countries also need to strengthen the institutions which manage economic policy and to
implement basic economic policy reform.
Congressional Action
Authorization Legislation
Current Status. On June 23, 2003, the Senate Foreign Relations Committee reported
the Consolidated Foreign Assistance Authorizations Act (S. 1161) which authorized (among
other things) full U.S. participation and authorizations for full U.S. contributions to the
pending MDB replenishment plans. In mid-June, the relevant subcommittee of the House
Financial Services Committee marked up MDB authorization legislation. The Senate and
House bills included specific measures aimed at increasing the transparency of the decision
making procedures of the MDBs and making more information about the activities of their
Executive Boards available to the public.
The House of Representatives approved a floor amendment on July 23 adding the MDB
authorizations and the policy language on transparency to H.R. 2800, the fiscal 2004 foreign
operations appropriations bill. This was the first time since 1977 that an authorization for
the IDA had been approved by a separate vote on the House floor and the third time since
1981 that any MDB authorizations had been approved as a separate bill or motion.
In February 2002, Congress appropriated funds in the Consolidated Appropriations
Resolution, 2003 (P.L. 108-7) to fund new U.S. contributions to IDA 13. Because the
authorization legislation has not been enacted, however, the Administration cannot pledge
U.S. participation in the full three-year IDA funding plan. Because the U.S. is not a formal
participant in the plan, the United States cannot make and IDA cannot accept the
contributions appropriated in early 2003. A one-year authorization to allow a new IDA
appropriation for fiscal 2004 would have a similar effect of blocking the actual contribution.
Asian Development Fund/IFAD. On May 1, 2002, the House approved H.R. 2604,
authorizing new $412 million U.S. contribution (over 4 years) to the Asian Development
Fund (ADF) and $30 million (over 2 years) to the International Fund for Agricultural
Development (IFAD). The bill was referred to the Senate Foreign Relations Committee. It
held hearings on this proposal, well as on replenishment proposals for the African
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Development Fund (AFDF) and IDA, on September 12 but has not reported legislation. No
new legislation has yet been introduced for the 108th Congress.
This was the secomd time since 1980 that either chamber has approved by regular order
(in a regular authorization bill) legislation authorizing new U.S. contributions to the IMF or
multilateral banks. Since 1980, all other IMF and MDB authorization measures have been
included in omnibus measures, reconciliation bills, or foreign operations appropriations bills.
In many instances, the authorization measures were placed in these bills in ways which made
amendment or deletion difficult (because of the rules governing their consideration). Some
people believe that the House action on the ADF/IFAD authorization bill signals that the
base of congressional support for IFI measures has broadened. Others believe that the IDA
13 authorization proposal will be a truer measure for the level of congressional support.
The Administration says that the ADF funding plan includes several provisions which
respond to prior congressional concerns. The ADF will allocate resources in the future on
the basis of country performance, stressing fiscal performance, good governance, and anti-
corruption measures. A plan to strengthen support for core labor standards has been
approved. An agreement has been signed with the World Bank to improve coordination and
minimize overlap and duplication. U.S. relations with the other ADF donors are somewhat
strained, however. The United States was successful during the ADF negotiations in its
efforts to achieve several important changes in ADF policies and procedures. Meanwhile,
however, the U.S. is seriously in arrears in its contributions to the last ADF replenishment.
While the other donors have largely completed their payments, the United States has yet to
pay $128 million of the $300 pledged towards the last replenishment.
As approved by the House, H.R. 2604 included several policy initiatives requiring the
Administration to seek a broad range of policy or procedural changes in IFAD and the
regional development banks. These include initiatives concerning transparency, user fees,
HIV/AIDS, dams, international terrorism, privatization of government-held industries,
arsenic in drinking water in South Asia, and opposition to any proposals that would help
reduce minimum wages below internationally recognized poverty levels. Broad support by
a substantial majority of the MDB membership will be needed if these policy initiatives are
to be put into effect. In some cases, it appears that support for these proposals by other
countries is not strong. In other cases, by contrast, it seems that some regional MDBs have
already adopted certain of these initiatives.
International Development Association. As noted earlier, representatives of the
donor countries agreed July 1 on terms for a new replenishment of the IDA. The new
replenishment would authorize $22.6 billion in new lending over the 3 years. Of this, $12.5
billion would come from donor contributions and most of the rest would be money received
as repayments for earlier IDA loans. According to World Bank documents, IDA is scheduled
to receive about $5.1 billion in loan repayments during the three years (2003-2005) of the
new replenishment plan. The rest of the IDA 13 loan funds would be borrowed ahead from
suture years. About 20% of the new money would come from the United States.
The IDA donors agreed that 18% to 21% of IDA aid during the next 3 years will in the
form of grants. They also broadened the range of activities that would be funded with grants.
(See above.) Several major policy initiatives were included in the IDA 13 plan, including
proposals to increase IDA’s impact on poverty, steps to improve project performance,
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measures to better measure the results of IDA programs, and more emphasis on private sector
development. Many of these respond to concerns voiced by the Bush Administration and by
Congress. The House Financial Services Committee held hearings on July 25 on the IDA
proposal as well as the upcoming replenishment proposal for the AFDF.
Table 1. Appropriations for Multilateral Development Banks
(Budget authority; millions of paid-in U.S. dollars)
FY2002 FY2003 FY2004 FY2004 FY2004 Conference
Final
Final
Request
House
Senate
Report
World Bank Group
Intl Bank for Reconstruction and
Development (IBRD)
—
—
—
—
—
—
Global Environment Facility
100.5
147.8
185.0
107.5
171.0 139.2
Intl Development Assoc (IDA)
792.4
850.0
977.0
850.0
976.8
913.2
Intl Finance Corp (IFC)
—
—
—
—
—
—
Multilateral Investment Guarantee
Agency (MIGA)
5.0
1.6
4.0
4.0
1.1
1.1
Intl Fund for Agric Development
20.0
15.0
15.0
15.0
15.0
15.0
Regional Development Banks
African Development Bank
5.1
5.1
5.1
5.1
5.1
5.1
African Development Fund
100.0
108.1
118.1
107.4
118.1
112.7
Asian Development Bank
—
—
—
—
—
—
Asian Development Fund
98.0
97.9
151.9
151.9
136.9
144.4
European Bank (EBRD)
35.8
35.8
35.4
35.4
35.4
35.4
Inter-American Development Bank
Ordinary Capital
—
—
—
—
—
—
IDB Fund for Special Ops (FSO)
—
—
—
—
—
—
Inter-American Investment Corp
18.0
18.4
30.9
—
0.9
—
Multilateral Investment Fund
—
24.6
32.6
25.0
30.6
25.0
N. American Development Bank
—
—
—
—
—
—
TOTAL, all MDBs
1,174.8 1,304.3
1,555.0
1,296.3 1,455.5
1.395.7
Total arrears if bill passed thus
533.2
518.0
—
—
—
—
African Development Fund. In late 2002, donor countries agreed on plans for a
new ninth replenishment of the African Development Fund (AFDF 9). The Administration
has requested an authorization of $354 million to fund U.S. contributions, which would be
appropriated over a 3- year period. No information is yet available on new policy initiatives
included in the replenishment plan. Treasury Under Secretary John Taylor told the Senate
Foreign Relations Committee in September that the African Development Bank (of which
the AFDF is a part) has made major improvements in management and information access
in the past decade. He also said the AFDB would likely play a major role in the elaboration
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of the New Partnership for African Development (NEPAD). In particular, he said, the AFDB
will take the lead in promoting regional economic integration and improved banking and
financial standards.
Authorization in the Appropriation Bill. In mid-September, the House
Appropriations Committee reported H.R. 5410, its version of the fiscal 2003 foreign
operations appropriations bill. Section 580 of that bill authorizes the appropriation of funds
for full U.S. participation in the upcoming replenishments of the African Development Fund,
Asian Development Fund, International Development Association, and International Fund
for Agricultural Development. This bill did not pass at the end of the session. The
continuing resolution passed in early 2003 did not include this provision.
Appropriations
Fiscal 2003. In January 2002, the Bush Administration requested (as part of its
budget submission) that Congress appropriate $1,437.2 million for MDB programs for
FY2003. This is the largest appropriations request for MDBs since at least FY2000. It
includes an increase in U.S. contributions to the IDA. It includes substantial funding for the
ADF and GEF, to help reduce the large arrears in payments the U.S. has accrued for those
programs. It also includes enough funding for the MIF — the small program attached to the
IDB which provides grants for microenterprise, small business, job training, and other similar
programs — to cover the U.S. arrears and prevent other countries from withdrawing their
contribution pledges. Without a U.S. payment to retire arrears, the program would possibly
be forced to close. Most countries would blame the United States for that situation. This
might have negative effects for U.S. leadership in other IFIs.
In December 2002, the House Appropriations Committee approved a bill ( H.R. 5410)
to fund foreign operations programs in fiscal 2003. It included language authorizing U.S.
participation in the IDA 13 replenishment and other pending MDB funding plans and it
appropriated $1,304 million to fund MDB programs in fiscal 2003. No final action was
taken in either chamber on this legislation, however, before the end of the 107th Congress.
On January 8, 2003, the House passed H.J.Res. 2, a continuing resolution to temporarily
fund the government until a final bill could be passed. The Senate replace the House’s
original language with provisions funding the government for through the end of the fiscal
year. In effect, the House and Senate conferenced the recently passed Senate version of
H.J.Res. 2 with H.R. 5410 from the prior year. For the multilateral banks, it approved the
appropriations figures shown in Table 1.
Fiscal 2004. The Administration requested appropriations totaling $1.555 million
for the MDBs. Table 1 (above) shows the amounts the House and Senate approved for U.S.
contributions to the MDBs for fiscal 2004 as well as the amounts that were agreed to in the
conference report for H.R. 2800. The terms of the conference report were printed in the
Congressional Record for November 25, 2003, Book II (CR H12323-12746); the funding
tables for the conference report were printed with House debate in the Congressional Record
for December 8, 2003 (CR H12766-12845). Due to the press of business at the end of the
2003 session, the conference version of H.R. 2800 was incorporated (along with other
appropriations bills) into H.R. 2673, the Consolidated Appropriations Act for Fiscal 2004.
The House approved the new consolidated appropriations measure on December 8. In the
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Senate, however, there was strong debate on some non-MDB provisions of the bill. A
cloture motion was filed on December 9. However, the vote on that motion was scheduled
for January 20, 2004, at the beginning of the next session of the 108th Congress.
Reforming the IFIs
Since the Asian Financial Crisis began in 1997, major discussions have been underway
in the IFIs and among their major member countries about possible changes in the basic
architecture of the international financial system. This includes possible shifts in the policies
and priorities of the IFIs, the relationships among them, and the relationships between the
IFIs and the private sector. The IFIs have adopted a number of policy changes aimed at
improving their operations. The IMF in particular has adopted a series of voluntary
guidelines which seek to help countries improve the stability of their financial and monetary
systems and the effectiveness of their policies. The IFIs have adopted procedures which
provide more information to the public on their policies and on conditions in their member
countries. However, few major alterations have occurred in the basic structure or function
of the IFIs. A broad consensus of the membership is necessary to effect basic change. The
leading member countries disagree about the kinds of change which might be needed.
Since at least 1998, leading Members of Congress have tried through legislation to
effect fundamental changes in the structure and the policies of the IFIs. Several strong
recommendations were included in the 1998 legislation approving U.S. participation in the
most recent increase in IMF quota resources and in the fiscal 2001 foreign operations
appropriations act. It is important to note, in this regard, that the United States cannot make
the IFIs adopt changes in their policies and procedures. The United States does not have the
votes to make the IFIs take action and (except for the IMF) it does not have enough votes to
block IFI funding plans from going into effect over its objection. Change in the IFIs must
be accomplished by persuading other countries that the U.S. proposals are good ideas that
they also should support. If the G-7 countries agree on a proposal they have (or can
influence) enough votes to put it into effect. However, most other G-7 countries do not agree
with many of the initiatives in recent U.S. legislation or U.S. policy initiatives.
The 1998 IMF legislation created a congressionally-appointed commission to review
and make recommendations regarding change in the basic structure of the IFIs. The
commission (headed by Professor Alan Meltzer) released its recommendation in March
2000. The Clinton Administration agreed with some of the Meltzer Commission’s
proposals and it opposed others. The Commission said countries should qualify in advance
by adopting major reforms in their financial reporting, financial institutions, and government
budgetary practices. The Administration said countries should be able to borrow, even if
they do not meet these standards beforehand, and the IMF should use its conditionality to
bring about needed reforms. The Commission said the IMF should charge penalty rates of
interest, above existing market rates. The Administration said this would be
counterproductive. In 2001, Treasury Secretary O’Neill filed a report with Congress that
was also strongly critical of the Meltzer Commission’s policy recommendations for the IFIs.
The Meltzer Commission said the World Bank should lend only to the poorest countries
and it should stop lending to countries which have access to private capital. It should also
devolve most of its loan functions to the regional MDBs, becoming a grant-making
institution focused on global public goods. The Clinton Administration said the World Bank
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should still make loans to countries which have some access to private capital but it should
take care that its loans not supplant the private sector. It said the Bank should focus
primarily on poverty alleviation, social programs, and institutional or policy reform. Both the
Administration and commission agreed that the IFIs should forgive substantial amounts of
debt owed them by the poorest countries. They also agreed that the United States and other
donors should substantially increase their contributions for MDB concessional aid. The Bush
Administration’s views were discussed at the beginning of this issue brief.
The FY2001 appropriations act included several provisions which required the IFIs to
consider possible reforms (see below). However, they did not require that the IFIs must
implement these reforms before the U.S. could contribute any money (as was proposed —
but ultimately not enacted — in 1998). Rather, they say the Secretary of the Treasury must
advocate certain reforms in the IFIs and report to Congress any steps they have taken towards
achieving those goals. Congress did not adopt any language in the FY2002 appropriations
act seeking major reforms in the IFIs.
Section 588 of the FY2002 law said that 10% of the money appropriated for each IFI
shall be withheld and not contributed until the Secretary of the Treasury certifies that it has
adopted certain procurement and management reforms. These include procedures for
requiring annual independent audits of all new investment loans, for requiring independent
audits of the central banks of all countries which borrow from the IMF, for assessing the
risks of corruption in borrower countries before they get new loans, for establishing new
transparency and anti-corruption procedures in borrower countries, and for creating a new
fraud and corruption investigative unit in each IFI. The Secretary must report on steps the
IMF has taken to achieve these goals.
The Act directed the Secretary to seek stronger procedures in the MDBs improving their
loan monitoring procedures in order to limit corruption in borrower countries, to strengthen
governance and reduce bribery and corruption in those countries, and to punish any corrupt
practices by MDB staff. It required GAO to report annually regarding the adequacy of IFI
audit procedures. It directed the U.S. representatives at the IFIs to oppose any loans for
primary education or primary healthcare if the projects imposed user fees on people receiving
assistance from them. It also said that the Secretary of the Treasury should seek agreement
with other countries that any new aid which IDA provides to countries receiving HIPC debt
relief (see below) should be provided through grants rather than new concessional loans.
Section 801 said the MDBs should adopt a series of new rules or guidelines. In
particular, the banks should require that all new lending to a country would cease if it used
loan funds for purposes other than those originally intended. The MDBs should adopt new
procedures to prevent their loans from supplanting private financing. The banks should not
disburse money if a borrower country has not adopted the specific policy reforms mandated
by a loan agreement. The MDBs should also adopt new standards for measuring the progress
countries are making towards graduation from eligibility for concessional loans. The new
law said that the World Bank should adopt policies aimed at minimizing the number of
projects that would displace a population involuntarily or would be detrimental to the people
or culture of the people to which the displaced population would be moved. It also said that
the IMF should adopt policies which would vigorously promote open markets and trade
liberalization in its borrower countries.
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Section 804 said that it would be the policy of the United States to work for the
adoption of reforms requiring the IMF to lend mainly for short-term BOP finance. Medium-
term loans should be available only in certain circumstances and the IMF should charge a
premium on most of its loans in order to discourage use and encourage countries to rely more
on private sector finance.
Most countries seem willing to consider proposals for reform on their merits, but few
appear willing to acquiesce to unilateral demands. If the United States had tried to made the
implementation of reforms a prior condition to any U.S. payment, other major IFI member
countries would have likely objected. In 2001, for example, Senators Gramm and Helms
sought to make U.S. contributions to HIPC conditional on the IFIs adopting major changes
in their policies and procedures. Congress ultimately chose not to adopt that language.
Many analysts doubt that the goals of their initiative would have been realized even if it had
been adopted into U.S. law. Few countries seem willing to accept broad permanent changes
in the IFIs simply in order to get a modest one-year HIPC contribution from the United
States. Major reform in the IFIs will come only when there is a broad consensus on the part
of most countries that particular changes are more desirable than the status quo. Many of
the proposals currently being considered in the United States and other countries are not
mutually compatible. A major challenge facing the United States in future years will be the
development of such a consensus in support of policy changes which the Administration and
Congress will support and other countries will find acceptable.
MDBs and Developing Country Debt
Many of the poorest MDB borrowers have had serious difficulty servicing their
international debts in recent years. Estimates suggest that the 41 most heavily indebted poor
countries (HIPCs) pay only about 40% of their annual debt service obligations. As a whole,
the total foreign debt of the HIPC countries was nearly 122% the size of their combined
Gross National Product (GNP). For many countries, the share is even higher. Over half this
debt was owed to bilateral lenders and 35% was owed to MDBs. The MDBs are the only
lenders who are being paid (and the only ones making new loans). In 1998, for instance,
$1.8 billion, or half of HIPC country repayment of principal went to multilateral creditors.
Only $0.8 billion was paid to bilateral lenders. The HIPC countries are more than $15 billion
in arrears to their creditors for unpaid interest due on their long-term debt.
During the height of the international debt crisis in the 1980s, the United States and
other major countries used the MDBs as principal vehicles for helping debtor countries. The
major concern at the time focused on heavily-indebted middle-income countries, who owed
most of their debt to private lenders. Many analysts feared that the stability of the world
financial system was at risk. In 1985, then-Treasury Secretary Baker said the IMF, World
Bank, and IDB should lend $20 billion over several years (along with $20 billion more from
commercial lenders) to help the 17 largest middle-income debtors cope with their problems.
In 1989, then-Treasury Secretary Brady said the MDBs and IMF should help middle-income
countries finance voluntary debt-reduction plans involving commercial creditors. Between
1989 and 1994, the World Bank and other multilateral agencies lent $7.9 billion to 12
middle-income countries, helping them negotiate a $63 billion forgiveness of the $193
billion owed to these lenders. Similarly, the IDA Debt Reduction Facility helped 7
low-income countries extinguish through debt buy-back schemes (at about 14 cents to the
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dollar) $815 million owed to commercial creditors. IDA has also made loans (via its “Fifth
Dimension” program) to help poor countries finance payments for old IBRD-rate loans.
In October 1996, the World Bank and IMF approved a plan offering debt relief to
heavily-indebted poor countries (HIPC). It aims to reduce the debt burden of these countries
to “sustainable” levels — i.e., a debt load equal to 200-250% the value of a country’s annual
exports — in two stages. First, the MDBs would be ready to forgive up to 90% of the debt
owed them by HIPC countries and they asked bilateral and commercial creditors to provide
the same. (Bilateral creditors said that 80% was the most they would do; private creditors
have not volunteered to participate.) Meanwhile, the debtor country would pursue a 3-year
program of economic policy reform. Second, at the end of that period, the Bank and Fund
determine if the country’s debt burden was “sustainable.” If not, it would be declared
eligible for HIPC terms, and after a period of up to 3 more years, the Bank would retire
enough debt owed it to bring the country’s debt burden to a manageable level. The Bank
would reimburse itself for the retired debt with money set aside from its annual net income
or contributed by individual donor countries.
Critics argued that the plan’s criteria for eligibility are too restrictive and the period of
time it took to qualify for possible debt relief was too long. In June 2000, at the Cologne
Economic Summit, G-7 leaders agreed that HIPC should be expanded and the time period
shortened. At the World Bank annual meeting in October, Bank member countries agreed
that the HIPC program should seek to qualify 20 countries for debt relief by the end of the
year. The United States insisted that standards should not be weakened and countries should
still be required to undertake major market-oriented economic reforms in order to qualify.
World Bank officials estimate that the G-7 initiative would double — to $4 billion — Bank
expenses and represent a commitment they could not meet out of existing resources. Some
critics assert, however, that the Bank could provide more debt relief if it were willing to use
IDA loan resources for this purpose. (For more information on the HIPC program, see CRS
Report RL30214, Debt Reduction: Initiatives for the Most Heavily Indebted Poor Countries.
For a discussion of African debt issues, see CRS Report RS21329, African Debt to the
United States and Multilateral Agencies.)
In 2000, the Administration asked Congress to authorize a $600 million contribution
to the HIPC trust fund and to appropriate funds for FY2000, FY2001, FY2002, and FY2003.
The Senate Foreign Relations Committee included this authorization in its bill, S. 2382,
which also included authority for the U.S. representative at the IMF to vote for a resolution
allowing the IMF to use for HIPC the “profits” realized last year when it sold 5 million
ounces of gold. Authority to use income from an earlier sale of 9 million ounces was
approved in 1999. Congress included authority for the HIPC trust fund contribution and use
of the gold proceeds in the final FY2001 foreign operations appropriations act. It
appropriated (in Title II) $225 million for contribution to the HIPC trust fund in FY2001 and
(in Title VI) a supplemental $210 million for contribution in FY2000. In the FY2002 foreign
operations appropriations act, Congress appropriated another $224 million for HIPC.
The money for HIPC carries several conditions. The Secretary of the Treasury may not
disburse funds to HIPC for the benefit of any country that engages in a consistent pattern of
human rights violations or in international military or civil conflicts which would undermine
its ability to develop and institute effective measures for poverty-alleviation. The Secretary
may not disburse any money to HIPC for the benefit of Sudan or Burma unless
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democratically elected governments has taken office in these countries. U.S. funds for HIPC
debt relief can only be used for assistance to countries which agree not to accept market-rate
loans from any IFIs that received debt relief funds from the HIPC trust fund. The 2002 act
specified that U.S. contributions to the HIPC trust fund could only be used to pay off loans
owed to the IDB, AFDB, AFDF, and Central American Bank for Economic Integration
(CABEI). Countries could only receive U.S. funds through the HIPC trust fund if they
agreed not to accept any market-rate loans from IFIs that accorded them HIPC debt relief for
two years and only if they documented their commitment to direct the budgetary resources
that would have been otherwise used for international debt payments towards programs to
alleviate poverty and promote economic growth.
Unlike most other IFI accounts, the HIPC trust fund does not mix together the money
contributed by donor countries. Rather, the funds from each donor are held separately and
can only be used with the donor’s permission. Therefore, despite contrary precedents in all
other IFI accounts, the United States can control the way its contributions to HIPC are used.
In 2002, the World Bank announced, with the support of its executive board, that it
would no longer be able to fund the costs of IDA debt forgiveness from its own resources
(there being other requirements for those funds.) In the future, new contributions from donor
countries (some $400-600 million yearly) will be needed to offset lost IDA repayments.
Otherwise, IDA will need to start shrinking the size of its future loan program by that amount
yearly. IDA uses loan repayments to fund a major share of its new loans.
MDBs and Poverty
Initially, the MDBs’ main strategy for the alleviation of poverty emphasized the
efficient use of resources to promote growth and raise income levels in borrower countries.
During the 1970s and 1980s, the MDBs put increased emphasis on projects designed to target
benefits directly to needy persons. In the past decade, however, more emphasis is again
being given activities that promote growth. In 1991, the World Bank adopted a two-part
strategy aimed at eliminating the worst forms of poverty in developing countries by the year
2000. Part one stressed the need for increased growth. The Bank would encourage countries
to adopt incentives and policies that encourage broad-based economic growth and it would
finance the construction of infrastructure and other necessary facilities. Part two said that
growth must be supplemented with clearly defined poverty-alleviation programs, to ensure
that the poor both gained from and contributed to growth. The Bank said the volume and
composition of its lending would be linked to the borrowers’ own efforts to reduce poverty.
In 1993, the Bank announced plans for cutting in half in the next 20 years the share of the
world’s population facing hunger. It also said it would put more emphasis (via
microenterprise lending) on activities designed to meet the credit needs of poor borrowers
who are normally not considered creditworthy. The Bank has acted to expand its support for
microenterprise. The World Bank annual report for 1994 (the first issued after the 1993
announcement) did not mention the goal of cutting the level of world hunger in half and the
issue has not been raised in subsequent annual reports.
There is considerable debate whether the MDBs are doing enough to fight poverty.
Today, the controversy seems to focus less on whether they are funding enough anti- poverty
projects and more on whether the gains from these loans are offset by the possible injury
done to the poor by MDB adjustment programs. Many critics say U.S. contributions should
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be cut as long as the MDBs continue to promote adjustment and as long as they continue to
support top-down decision-making procedures that give average citizens in borrower
countries little say in the policy process.
The growth and poverty effects of economic reform are complex issues. Among the
strongest critics are non-governmental organizations (NGOs), which argue that adjustment
programs encourage borrower countries to change policies and reduce spending on programs
that benefit needy people. A coalition of NGOs announced plans in 1994 (the Fifty Years
is Enough campaign) to seek cuts in U.S. contributions to the World Bank until it altered its
approach to policy reform and put more emphasis on poverty alleviation. Proponents of
economic reform argue that countries in economic trouble may have few real alternatives but
to reform their policies and to change the structure of their economies. They say that, over
the long run, poor people can be hurt more by inflation and other effects of bad economic
policy than they are by the effects of policy reform. They say the burden of adjustment
actually falls most heavily on the middle class and government employees, not the poor. The
MDBs have increased their funding for “safety-net” programs to help mitigate any negative
effects their economic reform programs may have on the poor during the transition process.
Congress has passed several laws directing the USEDs to urge the banks to put more
emphasis on poverty alleviation. In 1989, for example, it directed the U.S. representatives
at the MDBs to propose that poverty alleviation be made a key goal of MDB operations. It
also said the banks should help their borrowers develop national strategies aimed at
eliminating the causes of poverty and they should give preference in their lending to
countries undertaking effective action in that regard. In 1990, Congress directed the USEDs
to encourage more lending for population, health, and nutrition programs in borrower
countries. MDB and U.S. officials say the banks have been responsive to these congressional
concerns. The House Banking subcommittee included a number of initiatives to promote
poverty alleviation in its 1997 authorization legislation (H.R. 1488).
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