Titans Or Behemoths?

by Roy Culpeper

The multilateral banks are powerful forces in the international community, providing loans of more than $250 billion to developing countries over the past half- century. The best known, the World Bank, has been studied extensively, but the regional development banks are little understood, even within their own geographic areas.

In 1991, The North-South Institute (NSI) launched its project on the Multilateral Development Banks (MDBs), the first comprehensive study of the regional banks ever undertaken. The principal focus of the project was the effectiveness of the group of regional development banks?the African, Asian, and Inter-American Development Banks?plus the subregional Caribbean Development Bank, in their regions' unique circumstances. With the release in 1997 of the final synthesis volume, Titans or Behemoths?, the Institute's MDB project has formally come to an end.

The Banks' Importance

Titans or Behemoths? looks at the MDBs as a group of development institutions and studies the overarching role of the World Bank. One table (p. 39), showing cumulative loan approvals from MDBs by region through 1995, broadly illustrates the varying importance of the Banks?the Inter-American Development Bank (IDB), the Asian Development Bank (AsDB), the African Development Bank (ADB), and the European Bank for Reconstruction and Development (EBRD)?vis-à-vis the World Bank in various regions:

While the World Bank had up to a 20-year start over these regional banks, the IDB has recently more than matched it in Latin America, while the Asian Development Bank has done so in individual countries such as Pakistan and Sri Lanka. However, the World Bank has kept its preeminence from the 1980s through policy-based lending, as borrowers saw that a positive dialogue with it and the International Monetary Fund on an economic policy framework could unlock funds from various sources and lead to debt reduction measures.

A further factor is what the author calls "the rapidly rebounding private sector." Another table (p. 7) gives striking figures of private capital flows to developing countries:

Privatized utilities floating bonds, liberalized stock markets, and a growing private sector in developing countries have prompted the claim that foreign aid can be allowed to fade away and development can be left to the private sector. But Culpeper writes that "private capital ... will never be a perfect substitute for public finance in a range of activities, and will have limited relevance for many of the world's poorest countries for the next few decades." The MDBs need to find new ways of working with the private sector as private capital overtakes official capital flows.

The more advanced developing countries, particularly in Asia and Latin America, should soon "graduate" from MDB assistance, but for several decades there will be a need for these banks' assistance in the poorest countries. Summarizing the portfolio reviews of each regional bank that followed the critical Wapenhans Report on the World Bank in 1992, Culpeper notes that a common theme was to blame the banks' shortcomings on their propensity to "move money" rather than "achieve results" in terms of sustainable development. On balance, however, the contribution of the MDBs in supporting investment, economic growth, and capacity building has been "significantly positive."

The Reform Process

This book avowedly aims "to counteract the tide of cynicism toward and disillusionment over international cooperation." Culpeper adds that a rule-based global community that needs to address such problems as environmental collapse and mass poverty requires effective institutions acting for the public interest. He rejects schemes for reinventing a framework of global governance, opting for incremental reforms. This process of reform, he says, has started to make the MDBs more transparent and accountable, but it is far from over. To create a sense of ownership by the people and governments of developing countries, the MDBs should increasingly devolve their operations to field units and build up more self-reliant national institutions. In parallel, he suggests the creation of a "client satisfaction unit" that would balance the donors' evaluations.

To the questions, "How much duplication of effort occurs? Is there scope for greater specialization and division of labour between the World Bank and the RDBs?," Culpeper answers that this could happen with projects at the sectoral level, and the regional banks might take more responsibility for the smaller countries, as the Asian Bank does with the South Pacific islands. They should, he says, harmonize their country assistance strategies and systems for evaluating performance with the World Bank, to increase coherence in policies and operations at the country level.

He argues, however, against the withdrawal of regional banks from policy-based lending. This would make them agencies primarily concerned with project delivery, whereas they need to have stronger staff and a "greater capacity for policy analysis of both macroeconomic and sectoral issues," especially if work in countries and sectors is more formally divided to avoid duplication with the World Bank. He concludes: "Paradoxically, the RDBs may have to become more like the World Bank to be more different." Stating a belief in "competitive pluralism," he writes that "a degree of healthy competition among MDBs, and the other development agencies, encourages innovation and efficiency."

As the age of rapidly expanding lending draws to a close, the MDBs will heed the portfolio reviews by shifting to "high quality programming" from volume targets. During this time the Banks will, in fact, become net recipients of capital from developing countries paying back past loans. This gives greater urgency to more radical forms of multilateral debt relief than have been so far proposed, as Culpeper is sceptical of the benefits of the September 1996 deal for the 20 highly indebted poor countries.

The Banks' Future

Looking to the future for the MDBs, Culpeper takes as a starting-point the time-bound targets of the Shaping the 21st Century report of the OECD Development Assistance Committee, which sets out goals for poverty reduction, social development, and environmental sustainability. While the MDBs have been "the titans of the emerging postwar world of development, ... today another, much more powerful race of gods?the international financial markets?rules the world." The MDBs, he argues, can instead use their still formidable strengths to coordinate a partnership between the OECD and the developing countries in humane efforts to eradicate absolute poverty over the first half of the next century.

About The Book And Author

Published in 1997, this study is part of a larger project on the multilateral banks, launched by the North- South Institute in 1991 and supported by the Canadian International Development Agency, the Ford Foundation, the Swedish Ministry for Foreign Affairs, the Norwegian Ministry for Foreign Affairs, the Netherlands Ministry for Development Cooperation, the Inter-American Development Bank, the Caribbean Development Bank, the African Development Bank, and the Asian Development Bank. The results are presented in four volumes, one on each of the regional development banks, plus this synthesis.

Roy Culpeper is President of The North-South Institute, and has been director of the Institute's MDB project. For three years, before joining the Institute in 1986, he was advisor to the Canadian executive director of the World Bank.

Available at a cost of $25 from: Renouf Publishing Co.