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Strengthening Multilateral Development Banks: The Triple Agenda

GS Paper 2

 Syllabus: Important International Institutions, agencies and fora – their Structure, Mandate

 

Source: CGDEV

 Context: An Independent Expert Group (IEG) that was commissioned by the Indian G20 Presidency has released the ‘Strengthening Multilateral Development Banks: The Triple Agenda’ report.

 

What are Multilateral Development Banks (MDBs)?

  • An MDB is an international financial institution consisting of member nations from developed and developing countries.
  • MDBs provide loans and grants to member (especially poor/ developing) nations to fund projects that support their social and economic development.

 

The emergence of MDBs:

  • At the end of WWII, delegates from 44 countries met in Bretton Woods (US) to agree upon a series of new rules for international cooperation and reconstruction.
  • This led to the creation of the IMF and World Bank Group (WBG) in 1944.
  • The WB was responsible for providing financial assistance for the post-war reconstruction and economic development of the less developed countries.
  • While the WBG is the oldest and the largest MDB, there are ~15-16 prominent MDBs and Regional development banks (RDBs) today.

 

The role played by MDGs:

  • MDBs have a key role to support the needed reforms and resources.
  • They work with governments and the private sector to create the conditions for investment and transformation.
  • They are the most effective institutions to provide low-cost, long-maturity financing, to mitigate and share risks (in the most efficient way) faced by private investors.

  

Challenges faced by MDBs:

  • No longer suited to address the emerging global challenges: They lack resources, cultural ethos, methods and will to address the challenges like climate change and pandemics.
  • They are in a state of stagnation: Trapped in their procedures, approach and methods of work and resistant to structural changes.
  • Therefore, to transform development, the MDBs will have to transform themselves.

 

Recommendations of the IEG report – Triple agenda to harness the potential of MDBs:

 

The three elements of this agenda are:

  • Adopting a triple mandate of eliminating extreme poverty, boosting shared prosperity, and contributing to global public goods;
  • Tripling sustainable lending levels by 2030; and
  • Creating a third funding mechanism which would permit flexible and innovative arrangements for purposefully engaging with investors willing to support elements of the MDB agenda.

 

How can it be achieved?

  • Effective implementation of the triple agenda requires important changes in the ways that MDBs operate.
  • MDBs must become effective agents in all developing countries for integrating development and climate agendas.
  • They must work with governments and the private sector to reduce, share and manage risks and thereby bring down the cost of capital.
  • They must change their culture, become more client-responsive, and take more risks.
  • Timelines for project preparation should be shrunk and procedures
  • They must also increase the scale and nature of their activities.

 

Way ahead:

  • One of the greatest opportunities for transformation is in MDB’s engagement with the private sector.
  • The MDB system must become more than the sum of its individual entities. Their strength has come from heterogeneity, which permits innovations in different parts of the system.

Conclusion: While the reform agenda needs to be decisively put on track, there is a need for an independent monitoring group to encourage the full implementation of recommendations and report to G20 on progress.

 

Insta Links:

Reforming Multilateral Development Banks

 

Mains Links:

The World Bank and the IMF, collectively known as the Bretton Woods Institutions, are the two inter-governmental pillars supporting the structure of the world’s economic and financial order. Superficially, the World Bank and the IMF exhibit many common characteristics, yet their role, functions and mandate are distinctly different. Elucidate (UPSC 2013)