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Subcommittee Seeks to Ensure Multilateral Development Banks Focus on Spurring Economic Growth

Washington, Oct 9 -

The Monetary Policy and Trade Subcommittee, chaired by Rep. Bill Huizenga (R-MI), held a hearing today to examine the role of multilateral development banks in the global economy and how they can more effectively spur economic growth to alleviate poverty.

Multilateral development banks, known as MDBs, are the World Bank and four smaller regional institutions that provide loans and grants to developing countries.

“The United States is a member of each of these institutions.  Therefore, the Congress plays an important role in determining U.S. funding for the MDBs and engaging in oversight of the Administration’s participation in the MDBs,” Chairman Huizenga said.  “Today, the MDBs are operating in a world of new challenges and competitors.  Many emerging economies have far greater access to capital markets for funding. Additionally, a newly ambitious China has spearheaded the creation of the Asian Infrastructure Investment Bank and New Development Bank to finance projects in developing countries.”

Key Takeaways:

• The U.S. should ensure that MDBs do not take the place of the private sector in the markets. MDBs should focus on lending where need is acute, rather than competing with the private sector.

• The goal of MDB assistance should be economic growth and, therefore, MDBs should tailor their complex environmental and social safeguards to ensure that countries can use funds efficiently while remaining accountable for results.

• MDBs should identify and authorize projects that alleviate poverty and direct their spending to proven strategies that help the poor become more self-sufficient and achieve higher incomes.

“The United States could see a higher return on its MDB investments by encouraging the MDBs to generate evidence on what works in development, build processes to use such evidence most efficiently within their own operations, and disseminate the evidence effectively so that others, such as the United Stated Agency for International Development and the Millennium Challenge Corporation, can benefit. Such ‘knowledge spillovers’ improve the return on investment the U.S. taxpayers receive from their investment in the MDBs.” – Dean Karlan, Professor of Economics, Yale University

“The Bank’s knowledge generation efforts must inform the nature of its lending and be informed by that lending—rather than simply serving lending when called upon. This requires quite fundamental changes in staff and managerial incentives and resource allocation within the current structure.” – Martin Ravallion, Edmond D. Villani Chair of Economics, Georgetown University