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Tuesday, March 22, 2011

Multilateral Development Banks: Overview and Issues for Congress

Rebecca M. Nelson
Analyst in International Trade and Finance

The multilateral development banks (MDBs) include the World Bank and four smaller regional development banks: the African Development Bank (AfDB), the Asian Development Bank (AsDB), the European Bank for Reconstruction and Development (EBRD), and the Inter- American Development Bank (IDB). The United States is a member of each of the MDBs.

The MDBs provide financial assistance to developing countries in order to promote economic and social development. They primarily fund large infrastructure and other development projects and, increasingly, provide loans tied to policy reforms by the government. The MDBs provide nonconcessional financial assistance to middle-income countries and some creditworthy low-income countries on market-based terms. They also provide concessional assistance, including grants and loans at below-market rate interest rates, to low-income countries. 

Issues for Congress 
  • Effectiveness: Critics argue that the MDBs focus on “getting money out the door” (rather than delivering results), are not transparent, and lack a clear division of labor. They also argue that providing aid multilaterally relinquishes U.S. control over where and how the money is spent. Proponents argue that providing assistance to developing countries is the “right” thing to do and has been successful in helping developing countries make strides in health and education over the past four decades. They also argue that MDB assistance is important for leveraging funds from bilateral donors, tying policy reforms to financial assistance, and enhancing U.S. leadership.
  • Funding: Congressional legislation is required for U.S. financial contributions to the MDBs. Replenishments of the concessional windows occur regularly; capital increases for the non-concessional windows happen more infrequently. Unusually, all the MDBs have currently requested capital increases, generally because MDB lending has increased following the global financial crisis. The Administration requested U.S. participation in capital increases in the FY2011 budget (for the AsDB) and FY2012 budget (for several other MDBs).
  • Oversight: In addition to congressional hearings on the MDBs, Congress exercises oversight over U.S. participation in the MDBs through legislative mandates. These mandates direct the U.S. Executive Directors to the MDBs to advocate certain policies and how to vote on various issues at the MDBs. Congress also issues reporting requirements for the Treasury Department on issues related to MDB activities. Finally, Congress can withhold funding for the MDBs unless certain institutional reforms are met (“power of the purse”). 
  • U.S. Commercial Interests: More than $30 billion in contracts are awarded each year to complete projects financed by the MDBs. Some of these contracts are awarded to U.S. companies. The World Bank has been discussing major changes in how companies bid on World Bank projects, and this could be an area for Congress to monitor given U.S. commercial interests in the bank.

Date of Report: March 7, 2011
Number of Pages: 29
Order Number: R41170
Price: $29.95

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