Multilateral Development Banks MDBs My LIUC

Document Sample
Multilateral Development Banks MDBs My LIUC Powered By Docstoc
					Multilateral Development Banks and

   Lecture 7
   LIUC 2010
     Multilateral Development Banks (MDBs)
MDBs are institutions that provide financial support
 and professional advice for economic and social
 development activities in developing countries.
 The term Multilateral Development Banks
 (MDBs) typically refers to the World Bank Group
 and four Regional Development Banks:
n The African Development Bank (AfDB)
n  The Asian Development Bank (ADB)
n The European Bank for Reconstruction and Development
n The Inter-American Development Bank Group (IADB)
               The World Bank Group
n   The World Bank Group is owned by 187 member countries
n   It is made up of two development institutions - the International
    Bank for Reconstruction and Development (IBRD) and the
    International Development Association (IDA)
n   The IBRD focuses on middle income and creditworthy poor countries,
    while IDA focuses on the poorest countries in the world.
n   They provide low-interest loans, interest-free credits and grants to
    developing countries for a wide array of purposes that include
    investments in education, health, public administration, infrastructure,
    financial and private sector development, agriculture, and
    environmental and natural resource management.
n   The International Finance Corporation (IFC) is also a member of
    the Group. It provides investments and advisory services to build the
    private sector in developing countries
        African Development Bank

n Shareholders:  53 African and 24 non-
  African countries
n Mission: to promote sustainable economic
  growth and reduce poverty in Africa
n Total Employees: 1,491
n Headquarters: Abidjan, Côte d’Ivoire
n Temporary relocation: Tunis, Tunisia
              Asian Development Bank
n   Shareholders: 67 members, of which 48 from the region
    and 19 from other parts of the globe.
n   Mission: to help its developing member countries reduce
    poverty and improve the quality of life of their people
n   Total employees: 2,500+
n   Headquarters: Manila

    Although most lending is in the public sector - and to
    governments - ADB also provides direct assistance to
    private enterprises of developing countries through equity
    investments, guarantees, and loans
Inter-American Development Bank (IADB)

The IADB group is composed of the Inter-American Development
   Bank, the Inter-American Investment Corporation (IIC) and the
   Multilateral Investment Fund (MIF). The IIC focuses on support for
   small and medium-sized businesses, while the MIF promotes private
   sector growth through grants and investments, with an emphasis on

n   Shareholders: 48 of which 26 borrowing and 22 non
n   Mission: combat poverty and promote social equity
    through programs tailored to local conditions.
n   Total employees: 1,745+
n   Headquarters: Washington D.C.
European Bank for Reconstruction and
Development (EBRD)

n   Shareholders: 61 countries and 2
    intergovernmental institutions (EIB and European
n   Mission: promotes entrepreneurship and fosters
    transition towards open and democratic market
    economies in Central-Eastern Europe and Central
    Asia (former soviet bloc).
n   Total employees: 1,260+
n   Headquarters: London
                  What do MDBs do?

The MDBs provide financing for development through the
n Long-term loans, based on market interest. For funding
  these loans the MDBs borrow on the international capital
  markets and re-lend to borrowing governments in
  developing countries.
n Very long-term loans (often termed credits), with interest
  well below market interest. These are funded through
  direct contributions for governments in donor countries.
n Grant financing is also offered by some MDBs, mostly
  for technical assistance, advisory services or project
     MDB Response to the Financial Crisis

    While the IMF is the focal point for the response to the
    systemic liquidity threat, the MDBs play a critical
    complementary role in limiting the spread and the impact
    of the crisis by:
n   Financing for fiscal measures targeted towards
    maintenance of jobs and social protection of the poor
n   Closing gaps and mitigating rollover risks in project
    financing, including infrastructure directly and by
    crowding in private and other official financing
n   Catalyzing trade financing
n   Supporting financial systems and credit flows to private
    sector and SMEs
    How MDBs have responded to the crisis

n   Acceleration and expansion of lending
n   Streamlined facilities made available
n   Increased flexibility to meet the varying needs of
    emerging markets and developing countries
n   Provided much larger scale of financing than
    anytime in their history: they are on track to
    deliver the promised $100 billion in additional
             MDBs’ role after the crisis

n   Even beyond the crisis, the global financial environment is
    likely to be much more difficult than in the past years.
n   MDBs can still play a critical role in mobilizing long-term
    market financing through its direct borrowing and by
    catalyzing stable private sector financing.
n   MDBs remain the most effective channel to provide
    concessional financing for low income countries.
n   New challenges: climate change and food security, global
    in nature and require globally coordinated action.
                      What’s next?

n   Need for a clear and shared vision and strategy on the role
    of the MDBs
n   Strengthen and reform the global development
    architecture for responding to the world’s long-term
    challenges. Increase coordination with other bilateral and
    multilateral institutions.
n   Key to learn lessons from the crisis. This includes:
    promote greater use of guarantees to provide insurance
    and catalyze private financing, simplify lending
    requirements, shift from an excessive focus on ex-ante
    safeguards and conditionality to country systems and ex-
    post evaluation…
EBRD and its role in the crisis
The spread of the crisis across the region
n   Aug 07- Sep 08 Most transition economies remained largely unaffected,
    with the exception of Kazakhstan and the three Baltic countries, where
    credit reversal had started before the onset of the global crisis.
n   Sept 08 - Mar 09 The crisis hit hard following the collapses of Lehman
    Brothers and Washington Mutual in the United States in mid-Sept. Risk
    premiums shot up, cross-border net lending turned negative, and export
    volumes contracted. FDI flows also declined, although net inflows
    remained positive. Sharp economic contraction in many countries.
n   April 2009-June 2009 In line with the general recovery in international
    financial markets, regional financial indicators began to point upward .
    At the same time, the effects of the financial and real shocks began to be
    felt in the corporate, household, and banking sectors, with rises in
    unemployment, corporate insolvencies and non-performing loans.
n   H2 2009 – present signs of recovery, but a lot of heterogeneity
Ebrd: Transition report 2009
    Domestic policy challenges
n   Monetary and fiscal policies: no one-size-fits-all.
n   Right policies depend on: strength of public balance sheet,
    credibility of monetary and fiscal institutions, currency
    composition of debt, domestic inflation dynamics, external
    and public financing constraints.
n   The overriding challenge (almost everywhere): to protect the
    core banking system and SME lending.
n   Another key challenge: maintaining SME financing
      Why the need for an international and
          coordinated policy response
n   International dimension was critical because of lack of
    private sector financing
n   Coordination is critical because of massive cross-country
     – Trade and financial integration carry the effect of both
       the crisis and the crisis response across borders
     – Competition for a common pool of private resources
       (global savings and liquidity).
    What did EBRD do to respond to the crisis?

n   Increased business volume from €5.1 bln in 2008 to €8
    bln in 2009
n   Recapitalised sound banks
n   Stepped in support for small and medium-sized
n   Expanded trade facilitation programme to maintain vital
    trade flows to and from the region
n   Worked more closely in coordination with other IFIs
n   Continued to finance key infrastructure in the region
      The Joint IFI Action Plan for Eastern
           European Banking Systems
n   European commercial banks have deeply invested in the EE
n   In Feb 2009 a common initiative of EBRD, EIB and World
    Bank Group was announced with the following objectives:
     ü Common needs assessment both at the level of Eastern
       European banking systems and at the bank group level
     ü A coordinated approach to refinancing and
       recapitalization, with burden sharing across IFIs, home and
       host countries, and parent banks.
n   IFI contribution: about € 25 bn during 2009-10
                  Capital increase
n   As a consequence of the crisis and the need to
    increase its investment activity in the region, in
    May 2010 EBRD Governors approved a capital
    increase of €10 billion, which will allow the Bank
    to accomplish its mandate and safeguard its
    financial stability, while preserving its AAA
n   € 1 billion is paid-in through reserve and €9
    billion is callable capital
              New challenges

n Foreign vs local currency: the new initiative
n Graduation and post-graduation
n Climate change - A new role for the Bank?
     The local currency and local capital market
                development initiative

n   Why?
    ü Reduces systemic risks associated with FX lending to
      unhedged borrowers
    ü Encourages domestic saving and investment
n   Why now?
    ü Significant post-crisis common ground
    ü Regulators moving forcefully against FX
    ü Post-crisis macro conditions start to make local
      currency a more realistic proposition
        The effects of the crisis on graduation

n   The global financial crisis has revealed the fragility of
    some past achievements in transition terms and has sharply
    increased demand for EBRD finance in the form of crisis
n   This has delayed the process of graduation, even if has not
    changed the Bank’s strategic orientation.
n   The EU-7 countries that were on the path to graduation
    before the crisis have now postponed this objective to the
    end of 2015.
n   Following graduation, the Bank will consider selective
    post-graduation operations in a manner consistent with its
A new role for EBRD as an environmental bank?

n   The development of energy efficient and low carbon economies
    remains a major transition challenge for the EBRD region.
n   The Bank has promoted energy efficiency since the early
    1990s, in view of the serious energy inefficiencies in the
    region’s capital stock.
n   The EBRD’s mandate and business model has allowed it to
    develop great expertise, especially in the area of mitigation.
n   The Sustainable Energy Initiative: through the initiative,
    launched in 2006, the EBRD is already achieving emission
    reductions at a large scale (similar to that of France) and at
    attractive economic terms.
n   The international community has now endorsed the need for
    deep cuts in global carbon emissions and some shareholders
    would like EBRD to be more and more involved in climate
    change mitigation.

Shared By:
renata.vivien renata.vivien