IFI Law - Book Chapter 7 Flashcards
Post Bretton Woods, there were three generations of IFIs. Which?
First Generation (1950s-1960s)
Examples: Inter-American Development Bank (IDB), African Development Bank (AfDB), Asian Development Bank (ADB), sub-regional banks like Corporación Andina de Fomento (CAF), East African Development Bank, Caribbean Development Bank.
Characteristics: Formed in the late 1950s to 1960s, these banks were initiated by regional groupings of developing countries. The primary goal was to create institutions more responsive to the specific needs of the regions they served. These banks aimed to give member countries greater influence over governance, voice, and voting rights.
Second Generation (Post-Cold War - 1990s)
Example: European Bank for Reconstruction and Development (EBRD).
Characteristics: Triggered by the end of the Cold War, the second generation saw the establishment of the EBRD in 1991. Proposed by the French President, its original purpose was to foster market economies and promote private sector development, especially in former Soviet bloc states embracing democratic principles and market economies.
Third Generation (21st Century)
Examples: New Development Bank (NDB), Asian Infrastructure Investment Bank (AIIB).
Characteristics: The third generation emerged in the 21st century, marked by China’s active involvement. The BRICS nations (Brazil, Russia, India, China, and South Africa) established the New Development Bank (NDB) in 2014, focusing on sustainable development. Additionally, China led the establishment of the Asian Infrastructure Investment Bank (AIIB) in 2016, with a regional focus and a broad membership.
Which first-generation development banks were modeled after the World Bank?
The first-generation development banks that were modeled after the World Bank include the African Development Bank (AfDB), Asian Development Bank (ADB), and Inter-American Development Bank (IDB).
What is the European Investment Bank (EIB) and when was it established?
The European Investment Bank (EIB) was established in 1957 by the Treaty of Rome. Its primary purpose was to promote investment in the less developed regions of the member states of the European Economic Community.
What expansion in mandate did the EIB undergo after its establishment?
Subsequent to its establishment, the EIB acquired a mandate to invest some of its funds outside the member states of the European Union. This expansion allowed the EIB to finance projects in developing countries.
How have the operations of the European Investment Bank (EIB) in developing countries been perceived?
The operations of the EIB in developing countries have sometimes been controversial, similar to other development banks.
Who can file complaints against the European Investment Bank (EIB), and to whom can they complain?
Non-state actors who allege harm from the operations of the EIB can file complaints to the European Ombudsman. Complaints must meet the requirements for submission to the European Ombudsman.
Regional development banks, such as the AfDB, ADB, and IDB, share several common aspects with the World Bank Group (WBG). Name eight of them.
Capital Structure: Both regional development banks and the WBG have a capital structure based on a mix of paid-in and callable capital.
Governance Structure: They have a governance structure where member states are allocated shares based on the size of their economies, resulting in weighted voting.
Regional and Non-Regional Members: Both types of banks have both regional and non-regional member states. Non-regional members may not borrow but can compete for procurement contracts.
Concessional Financing Window: Regional development banks, like the WBG, have both non-concessional and concessional financing windows. Concessional financing is provided to low-income countries through special funds or facilities. Non-concessional financing is provided to countries across a wider income spectrum, including middle-income and higher-income countries. Both have different terms.
Public and Private Sector Financing: They provide financing to both public and private sector borrowers. While the World Bank has separate entities for this, some regional banks provide it through their general operations.
Technocratic Institution: These banks are designed to be technocratic financial institutions, expected to base lending decisions on economic rather than political criteria.
Political Prohibition Clause: Similar to the WBG, these banks have a political prohibition clause in their Articles of Agreement, emphasizing the technocratic nature of their lending decisions.
Independent Accountability Mechanisms: Both regional development banks and the WBG have independent accountability mechanisms, such as inspection panels, to address complaints and enhance accountability to affected communities.
Why did the AfDB decide to expand its membership to non-regional states?
The exclusion of non-regional members proved to be financially unsustainable for the AfDB. As a result, the bank decided to offer membership to non-regional states that were willing to contribute capital.
What provision in the Articles of the AfDB ensures Africa’s significant representation in the bank’s affairs?
The Articles of the AfDB state that more than 50 percent of the members of the Board of Executive Directors must represent African states, aiming to preserve Africa’s voice in the governance of the bank.
What is the common approach among regional development banks, such as the AfDB, the ADB, and the IDB, regarding the governance role of regional member states?
Analogous efforts were made at the African Development Bank (AfDB), the Asian Development Bank (ADB), and the Inter-American Development Bank (IDB) to ensure that regional member states have a leading voice in the governance of their respective institutions.
What provision in the Articles of the AfDB ensures Africa’s significant representation in the bank’s affairs?
The provision in the Articles of the AfDB that ensures Africa’s significant representation is the requirement that more than 50 percent of the members of the Board of Executive Directors must represent African states. This provision emphasizes a structured and explicit approach to regional representation.
What are examples of Multilateral Development Banks (MDBs) that fall into the category of having a political or ideological purpose, in addition to an economic one?
The European Bank for Reconstruction and Development (EBRD) and the Islamic Development Bank (IsDB).
The EBRD, as per its Articles of Agreement, is mandated to promote market-based economies and has a focus on private sector development. It also has the authority to promote multi-party democracies, although this aspect is not a clear and substantial part of its operations.
The IsDB, established in 1975, has an Islamic focus and operates with the goal of fostering economic and social development in Islamic member countries.
How does the European Bank for Reconstruction and Development (EBRD) differ from the first category of regional development banks?
The European Bank for Reconstruction and Development (EBRD) differs from the first category of regional development banks in that it has a political as well as an economic agenda. While it shares similarities with the International Bank for Reconstruction and Development (IBRD) in terms of members’ contributions to capital and a weighted governance structure, the EBRD’s mandate includes promoting market-based economies and private sector development. Unlike the first category, the EBRD does not have a concessional financing window but does have an independent accountability mechanism.
How did the European Bank for Reconstruction and Development (EBRD) demonstrate its political agenda following the Arab Spring in 2011?
Following the Arab Spring in 2011, the European Bank for Reconstruction and Development (EBRD) amended its Articles to allow it to accept states in the Middle East as member states. This modification enabled the EBRD to fund projects and provide technical support in the Middle East, indicating a political dimension to its operations.
How does the Islamic Development Bank (IsDB) differ from traditional MDBs in terms of financing arrangements?
The Islamic Development Bank (IsDB) differs from traditional Multilateral Development Banks (MDBs) in its financing arrangements due to its adherence to Islamic banking principles.
Unlike traditional MDBs, the IsDB only funds projects compatible with risk and profit-sharing arrangements, making it a conservative lender.
Additionally, the legal contracts in IsDB financing arrangements are Sharia-compliant, resulting in differences, especially in provisions related to security arrangements and events of default. The absence of an obligation to pay interest by the borrower further distinguishes IsDB contracts from those of standard MDBs.
What is the objective behind the creation of the Asian Infrastructure Investment Bank (AIIB)?
China intended the AIIB to serve as both a new source of funding for infrastructure in Asia and an alternative development financing model compared to Western-led institutions like the World Bank and the Asian Development Bank (ADB).
The AIIB aimed to reduce upfront costs and lead time associated with development bank financing.
How has the membership and scope of operations of the AIIB evolved since its inception in 2016?
Since it began operations in 2016, the AIIB has expanded both its membership and the scope of its operations. It now has 105 member states, including Western countries and emerging markets outside the Asian region. The AIIB has also broadened its financing operations to include projects in non-Asian countries.
What measures are in place to preserve the Asian character of the AIIB?
To preserve the Asian character of the AIIB, its Articles specify that non-regional members cannot own more than one-third of the shares in the bank, and regional members will always have at least 75 percent of the total vote in the bank.
What is the initial focus and mission of the New Development Bank (NDB)?
The NDB was initially established to fund development in the five BRICS member states—Brazil, Russia, India, China, and South Africa. However, its Articles allow member states to invite other countries to join the bank.
How does the New Development Bank (NDB) address concerns about global economic governance, particularly from the BRICS and other countries in the Global South?
The NDB, created as a BRICS institution, has an implicit mission to promote reform of global economic governance arrangements. It seeks to advocate for global governance structures that are more responsive to the concerns and interests of the BRICS and other countries in the Global South. The Articles also provide that the five founding BRICS states will always collectively have a controlling vote of 55 percent in the affairs of the bank.
How do the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) differ from Western-backed development banks in terms of board structure?
Unlike Western-backed development banks and the first two categories of development banks, the AIIB and the NDB do not have a resident board of directors. Their directors serve the banks on a part-time basis and only meet periodically during the year, playing a less active role in the banks’ affairs.
What issue were the AIIB and the NDB created to address regarding the pace of transactions with earlier multilateral development banks?
The AIIB and the NDB were created to respond to concerns from their member states about the slow pace of transactions with earlier multilateral development banks. The traditional timeline between a country approaching a multilateral development bank for financing and the disbursement of funds, and the start of the project, could take up to two years in the case of the earlier banks.
How do the AIIB and the NDB aim to differentiate themselves in terms of financing speed compared to traditional multilateral development banks?
The AIIB and the NDB seek to be much quicker in providing financing compared to traditional multilateral development banks. They aim to expedite the process of approving and disbursing funds for projects, addressing the concerns about the time lag associated with earlier banks.
What are the negative implications of the AIIB and the NDB’s focus on quicker financing for the social and environmental impacts of funded projects?
The quicker financing approach of the AIIB and the NDB has implications for the social and environmental impacts of the projects they fund. The expedited timeline may influence how effectively social and environmental considerations are addressed in the planning and implementation of projects.
