2. Лауринайчуте

Multilateral development banks

Cap in hand

A difficult time for a fund-raising spree

A SENIOR World Bank official describes its efforts to secure an additional $3 billion-5 billion in paid-in capital as a “once-in-a-generation increase to deal with the effects of a once-in-a-generation crisis”. The bank agreed to lend $32.9 billion to poor countries in the year to June 2009, two-and-a-half times the previous year’s outlay of $13 billion. If it carried on at this rate, Robert Zoellick, the bank’s president, warned in October, its lending would face constraints by the middle of this year.

But its search for funds is being complicated by two factors. Some of its rich-country backers have overstretched budgets of their own, to put it mildly. And other large multilateral development banks (MDBs) are also seeking cash.

Some are further along than others. The board of the Asian Development Bank (ADB) approved tripling its capital base to $165 billion last April, though only 4% of the increase would be paid-in capital. The shareholders of the European Bank for Reconstruction and Development (EBRD) have reached a general consensus on augmenting its €20 billion ($27 billion) capital base by 50%, including €9 billion in callable capital (which countries commit but do not immediately pay)*. The African members of the African Development Bank want to triple its capital to $99 billion (94% of which would be callable). The Inter-American Development Bank (IDB) and the World Bank are finalising their capital-increase plans ahead of their annual meetings in March and April respectively.

The begging competition is affecting how much money the MDBs feel they can ask for, and how they plan to raise it. The World Bank, for instance, is only seeking enough money to allow its lending to return to pre-crisis levels. It wants to raise over half of its new capital from developing countries, partly in return for giving them greater say in its running. The dominance of callable capital in the other MDBs’ proposals also reflects the unfriendly climate for fund-raising.

All the banks are keen to highlight improved efficiency. The IDB says that administrative costs per $1m in loans approved have declined by 57% between 2006 and 2009, to $26,833. Its costs per $1m lent in 2009 were $15,314, lower than the World Bank's $20,600. The latter also raised charges on its loans last year, partly to assuage rich countries who want it to generate more income internally.

Fine-tuning their demands and pushing further on institutional reform will probably ensure that no MDB is denied cash, even if the politics are likely to be messy all around. But Nancy Birdsall, a former senior official at both the IDB and the World Bank, thinks a more fundamental reorientation is needed. Although these institutions have begun to place greater emphasis on measurable results, she argues, their focus is on pushing money out. The percentage of the IDB’s projects whose impact was rigorously evaluated doubled between 2005 and 2009, but only to 14%. Changing that would be an excellent use of a once-in-a-generation crisis.

Correction: We originally said that the EBRD's shareholders had agreed to augment its capital. In fact, the proposal has not yet been voted on. A vote is scheduled for bank's annual meeting in Zagreb in May. This was corrected on March 5th 2010.

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