New Multilateral Development Banks: Opportunities and Challenges for Global Governance
| Date | 01 February 2017 |
| DOI | http://doi.org/10.1111/1758-5899.12396 |
| Author | Hongying Wang |
| Published date | 01 February 2017 |
New Multilateral Development Banks:
Opportunities and Challenges for Global
Governance
Hongying Wang
University of Waterloo
Abstract
Is the creation of the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) a challenge for the
World Bank and other traditional multilateral development banks (MDBs)? This paper provides an initial assessment of the
potential benefits and risks of NDB and AIIB by examining their motivations, scale, structures, rules and first projects. It identi-
fies areas in which the new MDBs can complement the World Bank and other traditional MDBs and discusses ways in which
they can undermine the latter. It suggests ways in which the two types of MDBs can further their cooperation in development
financing.
The relationships between regional and global institutions
and among regional institutions are important and contro-
versial in global governance. In the 1990s, with the deepen-
ing of European integration, the creation of the North
American Free Trade Area, and various regional cooperation
initiatives in the Asia-Pacific region, scholars and policymak-
ers wondered if these regional blocs would fragment the
global governance framework. Today, regional and other
types of sub-global schemes are on the rise again.
In development cooperation, there is one global institu-
tion –the World Bank Group (WBG), consisting of several
lending arms –and many regional institutions, including
more than 20 multilateral development banks (MDBs) (Hum-
phrey, 2015a). In the past, the relationship among different
MDBs was discussed by various groups from time to time,
but this issue has grown much more salient in the last two
years following the creation of the New Development Bank
(NDB) and the Asian Infrastructure Investment Bank (AIIB).
The NDB is a joint venture among the BRICS countries (Bra-
zil, Russia, India, China, and South Africa), which seeks to
support infrastructure and sustainable development in the
developing countries. The AIIB, initiated by China and jointly
founded by fifty-seven member countries from Asia and
elsewhere, focuses on mobilizing resources to invest in
infrastructure in Asia. While some observers see the new
MDBs as new sources of financing and potentially better
models of development cooperation, others are worried that
they may undermine the WBG and traditional regional
MDBs.
It is too early to know how the NDB and the AIIB affect
the existing global framework of multilateral development
financing because both are new institutions. However, the
two banks have created their basic structures and rules, pre-
pared the ground for their first investment projects, and
interacted with other actors in international development
financing. These early signs provide the basis of a
preliminary assessment of the likely impact of these new
institutions.
The new regional landscape of multilateral
development banks
At the end of World War II, the International Bank of Recon-
struction and Development (IBRD) was created to help Eur-
ope rebuild after the war. Later, IBRD shifted its focus to
developing countries, providing financial support and pro-
fessional advice for economic and social development. Since
the creation of IBRD, more MDBs have emerged, roughly in
three waves.
The first wave happened during the era of decolonization
from the mid-1950s to the mid-1970s, which saw the cre-
ation of the International Finance Corporation and the Inter-
national Development Association, both as members in the
WBG. Outside the WBG, a number of regional development
banks were established in this era, including the Inter-
American Development Bank (IDB), the African Development
Bank (AfDB), the Asian Development Bank (ADB), the
Andean Development Corporation (CAF), and the Islamic
Development Bank (IsDB). Most of them, such as IDB, AfDB,
and ADB, are quite similar to IBRD in their governance and
operations. However, CAF and IsDB have some unconven-
tional characteristics. They are primarily owned and con-
trolled by borrower countries.
A second wave of MDBs took place from the early 1990s
to the early 2000s in response to developments in Europe,
including the creation of the European Bank of Reconstruc-
tion and Development (EBRD) to help promote market-
oriented economies in post-communist countries and the
Global Policy (2017) 8:1 doi: 10.1111/1758-5899.12396 ©2017 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 8 . Issue 1 . February 2017 113
Special Section Article
To continue reading
Request your trial