Multilateral Development Banks and Their Challenges

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Multilateral development banks (MDBs) have played significant roles in the fight against poverty for more than seven decades since the foundation of the World Bank, at the Bretton Woods conference. However, most developing countries perceive the World Bank and major regional multilateral banks as bureaucratic, too inflexible, and dominated by the self-interests of rich countries that hold large stocks in the said financial institutions.

Developing countries are following the footsteps of these other countries by having their own counterparts. Bilateral, regional-bilateral, and multilateral banks that offer market-based public loans are created with successful ones such as the CAF (Corporación Andina de Fomento, now called the Development Bank of Latin America) and the Central American Development Bank. The youngest among these are the Asian Infrastructure Investment Bank (AIIB) and the BRICS’ New Development Bank (NDB) with the Chinese as having the lead role in setting these two up.

The pressing concern is to review whether the MDBs current instruments, structures, and mandates will achieve their objectives. These MDBs were called to restructure their assistance in terms of finances and technicalities to obtain the post-2015 Sustainable Development Goals (SDGs) as part of the Addis Ababa Agenda for Action. As reported in the Development Committee Discussion Note on April 2015, the largest MDBs studied their capacity to obtain the goals of the proposed post-2015 SDGs and also to increase financial resources mobilization.

The post-2015 SDGs agenda supports the World Bank and other MDBs development approach. The breadth and level of Sustainable Development Goals are deeper compared to the Millenium Development Goals. These include governance and institutions, infrastructure and energy, domestic resource mobilization, improved business environments, and leverage of the private sector.

The role of MDBs in the fight against poverty and sustaining international development goes beyond plain intervention. MDBs divert more financial support to poorer countries than bilateral donors and they have more expertise in giving information and in monitoring the use of funds of these benefactors. The agreements between multilateral agencies and recipient nations are less politicized than with bilateral donors. Moreover, there is superiority in multilateral funding because of its de jure seniority.

There are other advantages with MDBs in regards to the aid effectiveness agenda. MDBs are better shock absorbers in terms of risks, plan development on a longer-term approach, offers more predictable finance, are better equipped with assessing of quality aid, that strengthens the confidence level of nations to make fiscal commitments on a long-term basis.