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U.S. leadership at multilateral development banks in a new era

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Last week’s China-led G20 summit brought new commitments from presidents Obama and Xi to work together on critical issues like climate and global development. On both fronts, the United States, China, and the rest of the G20 are looking to the World Bank and other multilateral development banks (MDBs) to play a central operational role. Yet, this spirit of cooperation belies an underlying tension between the world’s two largest economic powers over who will lead the MDB system. This is not an academic problem; for the last sixty years, the United States has relied on the MDBs to complement its bilateral aid and promote its values and objectives abroad. In a new paper published by the Council on Foreign Relations, I argue that the time has come for the United States to address a number of self-imposed obstacles to MDB leadership in the face of an ascendant China

The United States has long benefited from the work of a core group of MDBs like the World Bank and Asian Development Bank, in which the United States is at or near the top of the shareholder list. Much of the work of these MDBs has aimed to back open, rules-based, market-oriented economies in the developing world by supporting improvements in governance, physical infrastructure, and health and education. The MDBs have also served as effective instruments of U.S. foreign policy. The MDBs often act as carrots, providing financing and technical assistance in support of a particular objective, such as working with a newly democratically elected government to promote economic growth. Sometimes, withholding or withdrawing MDB support can serve as part of a broader U.S.-led sanctions regime against a country.

{mosads}At the urging of U.S.-based non-governmental organizations and their Congressional allies, U.S. officials have pursued reforms aimed at making the MDBs good stewards of the shareholders’ money—not only in a strict fiduciary sense, but also through applying social and environmental safeguards and by measuring and reporting project outcomes.

It is, of course, important to make sure that taxpayer resources are used productively, safely, and wisely. But increasingly rigid mandates guiding American behavior are often nonsensical in practice. U.S. representatives are routinely required – often by Congressional mandate – to oppose projects for reasons of process or technicality rather than substance. Worse, the overwhelming majority of projects are approved despite U.S. objections, making its opposition politically awkward and functionally pointless.

Restrictive guidance is not the only challenge facing U.S. leadership in the MDBs. The United States has historically been a leading donor to the MDBs’ grant-based support of the poorest countries. Yet the United States is no longer the largest donor at any of the MDBs. And even as U.S. commitments are falling relative to other donors, the United States is doing worse still in meeting those commitments. Unmet U.S. commitments to the MDBs have increased by a factor of four since 2001 and are projected to reach $1.8 billion this year.

All of this matters because there are other countries eager for influence. China is searching for ways to exercise more power around the world and has increasingly emphasized the multilateral approach. To the degree the Chinese feel shut out from a role in the core MDBs befitting the world’s second largest economy, Beijing will continue to be strongly motivated to expand its multilateral presence outside of the core and outside of the U.S. sphere of influence.

To blunt the rationale for additional multilateral banks like the Chinese-led Asian Infrastructure Investment Bank (AIIB), and to shore up the U.S. position inside the existing ones, the United States should work to ensure that the core MDBs maintain their leading financial position in the overall system. This means, for example, that the entry of the AIIB should be met with a concomitant U.S.-led expansion of capital at the core MDBs. The price tag would be reasonable, somewhere in the low hundreds of millions of dollars, amounting to little more than a rounding error within a U.S. foreign assistance budget of $34 billion. Doing so would ensure that U.S.-led institutions remain the preponderant bodies in the system.

Congress and the administration should also ease voting restrictions so that U.S. voting in the MDBs is less reflexively negative. A more appropriate arrangement would rely on consultation and reporting requirements, such that the administration would have to consult with Congress in advance of a sensitive vote or report on a vote if it triggers some policy concern. This is not to say that the United States should never stake out opposing positions in the MDBs, but the decision to do so should be deliberate and calculated. When such decisions are taken, their weight should not be diluted by a context of rote opposition to MDB projects.

The task for U.S. officials in the years ahead should be to accommodate a larger role for emerging countries, particularly China, in the multilateral development bank system, but to do so from a position of strength and with ambition for the MDBs in U.S. policy. The alternative, in which the United States neither makes space for new voices nor promotes the MDBs themselves, will lead to a weaker system that will harm the United States and the global good.

Scott Morris is a Senior Fellow at the Center for Global Development and author of the Council on Foreign Relations discussion paper, “Responding to AIIB: Leadership at the Multilateral Development Banks in a New Era”

The views expressed by authors are their own and not the views of The Hill.


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