IFI governance


Study on strategic issues for development banks

12 December 2000

A wide-ranging new study overviews the strategic framework for the future of the Multilateral Development Banks (MDBs). The Foresight and Policy Study of MDBs, carried out by the Institute for Development Studies for the Swedish government, is broadly positive about MDBs, but makes a series of recommendations to increase their relevance and effectiveness.

The study recognizes that “this is a time of unprecedented stress on the entire MDB system. MDBs are confronted with angry mobs calling for their abolition; with accusations of expansionism, with pleas for expanded roles in human rights and ‘good governance’ and with public reports urging radical changes, greater role differentiation and much higher levels of specialization.” It points to pressures and paradoxes including: “challenges from poorer member countries to help catalyse successful integration into the global economy and, at the same time, to alleviate the deep socio-economic fissures that such integration can also cause”. It also refers to calls to exercise regional and global leadership whilst also reflecting the myriad interests and viewpoints of a wide range of actors.

Some of the muddled thinking about the World Bank and similar institutions results from a failure to appreciate that they are not just aid institutions but “central to the international financial system which has grown explosively during the last three decades”. Based on a literature review and many interviews with senior MDB staff members, government officials and policy makers, financial sector experts and researchers the study concludes: “In spite of many problems and shortcomings, independent analyses have consistently confirmed a reasonably positive track record and the fact that there are no other institutions that provide a comparable range of products and services to member countries. With the possible exception of similar organizations that would benefit from automatic resource mobilization mechanisms (e.g. international taxes), there are no alternative institutional innovations in sight that could provide the combination of financial resource mobilization, capacity building and institutional development, knowledge brokering and the provision of international public goods.”

It stresses, however, that “This does not imply a ‘business as usual’ approach. MDBs must articulate multiple strategies to maintain and increase political support from all their shareholders (i.e. not only from the most powerful ones)”.

The report criticizes many aspects of current approaches. On the World Bank’s “knowledge” agenda, for example it states: “the World Bank continues to be dominant as the main purveyor of development ideas. Although its policy prescriptions change significantly over time, a ‘the Bank can never be wrong’ mentality still prevails in much of the institution’s thoughts and actions”.

Among the studies many detailed recommendations are to:

  • Renew intellectual capacity to engage in policy dialogue with stakeholders, embracing intellectual diversity and a greater willingness to learn from others.
  • Focus on spreading best practices and on building policy-making capacities in borrowing countries.
  • Give greater and special emphasis to technological innovation and scientific research capabilities.
  • Explore the possibility of charging for technical assistance, information, policy dialogue services to middle and high-income developing countries.

On the hot topic of how and how far the MDBs should be involved in producing and distributing “public goods” the report recommends that the MDBs should form strategic partnerships with other organizations and “not on their own continue to attempt to provide public goods”. “The rapid expansion of demand on the MDBs to play a much greater role in the provision of regional and global public goods needs to be further examined in order to arrive at the right balance between this function and direct support to the development of a borrowing country”.

Not everyone will agree with this thought-provoking report but it contains arguments and evidence that many people will find interesting. Future reports are planned on global public goods in particular.

A Foresight and Policy Study of Multilateral Development Banks (MDBs) Prepared for the Ministry of Foreign Affairs, Sweden by The Institute of Development Studies, UK.

Kåre Pugerup, Project Director, Development Financing 2000: