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  • Author: Nancy Birdsall
  • Publication Date: 12-2018
  • Content Type: Special Report
  • Institution: Center for Global Development
  • Abstract: Does governance matter for the long-run financing of the multilateral development banks? The structure of governance of the legacy MDBs (the World Bank and the four major regional development banks founded in the twentieth century) ideally should minimize any tradeoff between the confidence of creditor shareholding countries, on which an MDB’s own financing depends, and the sense of ownership, legitimacy, and trust of borrowing countries, on which the MDB’s effectiveness in supporting development in those borrowing countries depends. Among the five legacy MDBs, the African Development Bank stands out as the one where the governance arrangements, including the distribution of shares and votes between borrowers and nonborrowers, most favors borrowers. Indicators of the AfDB’s relative financial strength (a measure of creditworthiness based on sovereign members’ vote shares, and a measure of the capacity of each bank’s members to engage in collective action or cooperation in raising financing) indicate that its current governance is likely to make it less competitive than its sister MDBs in sustaining creditor (or “donor”) confidence in its operations over the long run, and thus in raising substantial capital and concessional resources. The governance problem is most obvious in the case of the African Development Bank’s African Development Fund, which today has only about 15 percent of the resources the World Bank has for Africa. The creditors of the AfDB have sufficient control to ensure the Bank’s financial soundness (and AAA rating), but a collective action constraint in pushing for reforms in the Bank’s operations. The paper concludes with ideas for long-run reform of governance at the African Development Bank, modeled more closely on the governance of the Inter-American Development Bank.
  • Topic: International Affairs
  • Political Geography: Global Focus