International Politics Week 9: The World Bank

1. International Politics Week 9:The World Bank Instructor: James Raymond Vreeland, Professor 2.0

3. What did we learn so far about the IMF? • Trilemma • Bretton Woods: its causes & its collapse • Politicians care about survival • Economic growth important • What is the IMF? • Like an inter-governmental credit union • Members deposit • IMF lends to countries in trouble •  moral hazard • Solution? • Conditionality • Governments may not want to sacrifice sovereignty • “Let’s you lose” (this session)

4. This session: • Domestic politics and IMF conditionality • But first a step back…

5. So you’ve learned which democracies will survive (developed) Which will have the most stable policies?

6. Unpacking democracy

7. Pick out the pair: • Italy • United Kingdom • United States • Suggestions??

8. Consider US, UK, & Italy. • Culturalists: Anglo-Saxon v. Latin • Party theorists: 2 party v. multiparty • Parliamentary theorists: • Who would group US and Italy together?

9. What is a “veto player”? • Individual or collective actors whose agreement (by majority rule for collective actors) is required for a change of the status quo.

10. It may be misleading to examine institutional features in isolation. • “VETO PLAYER” approach offers a consistent framework for comparing across regimes, legislature types, and party systems.

12. On the veto player dimension: • UK: Almost always 1. • US: Up to 3. • Italy: Usually about 4. • US and Italy are predicted to be more similar with respect to policy stability than UK.

13. VPS = “Veto Players” Puts Italy and US together

14. How does the # of veto players affect policy stability? By definition of “veto player,” unanimity between such players is required for policy change.

15. Straightforward prediction: • Increasing # of veto players  • Increases policy stability.

16. The role of the IMF in Domestic Politics

17. Domestic politics of IMF programs • IMF programs do not just consist of loans. There are policy conditions attached. • We often hear that governments want to avoid “conditionality.” • But sometimes governments actually want conditions to be imposed.

18. How does bringing in the IMF help push through economic reform? Figure 1: The logic of bringing in the IMF Payoff to veto player -1 (change policy) Accept Veto player Without the IMF Reject 0 (maintain the status quo) Executive With the IMF -1 (change policy) + loan Accept Veto player Reject -r (reject the IMF)

19. Example: Exchange Rate Devaluation • Suppose the IMF calls on a country to devalue the exchange rate • Who wins? • Who loses?

20. WINNERS AND LOSERS • Who wins from a fixed exchange rate? • Who wins from a floating exchange rate? • Who wins from a strong (overvalued) exchange rate? • Who wins from a weak (undervalued exchange rate)?

21. Focus on Sectors • Export-oriented sectors • Domestic producers competing with imports (import-competing) • Domestic producers not competing (non-tradable sector

22. Strong currency Domestic economic autonomy XR stability Weak currency

23. How might bringing in the IMF help push through floating XR? Figure 1: The logic of bringing in the IMF Payoff to veto player -1 (change policy) Accept Veto player REPRESENTS EXPORTERS Without the IMF Reject 0 (maintain the status quo) Executive Wants a floating XR With the IMF -1 (change policy) + loan Accept Veto player REPRESENTS EXPORTERS Reject -r (reject the IMF)

24. For your assignment • Think about the impact of IMF policy conditions on important domestic constituencies… • Who wins? • Who loses?

25. But what about the International Politics? • In this session’s • “domestic politics story” • The IMF is “credible” • Punishes non-compliance with conditionality • But is this commitment to punish always credible? • Tune in next time!

26. On to the World Bank…

27. Key differences between the IMF and the World Bank • IMF: • Exchange rate stability & Monetary policy • Mission creep development • Large loans for macro-targets ($100smillionsbillions) • Staff: around 2000 people – mostly in DC • World Bank • Development • Smaller loans ($10s millions$100 millions) • Specific projects (dam, schools, oil pipeline) • Multiple projects in one country • big countries may have several project loans, e.g., India >10 • Staff ~ 10,000 people – also mostly in DC but 100 offices worldwide

28. The World Bank • The primary DEVELOPMENT international institution • Projects of various scopes in both emerging market & poor countries • 2006: • $23.6 billion (loans & grants)  279 projects • 2011 http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20103853~menuPK:1697035~pagePK:51123644~piPK:329829~theSitePK:29708,00.html • $46.9 billion (loans & grants)  303 projects • 2012 http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20103853~menuPK:1697035~pagePK:51123644~piPK:329829~theSitePK:29708,00.html • $52.6 billion (loans & grants) • Critics (e.g. Easterly 2005): • World Bank has fallen short of its goals of improving living standards and reducing poverty • Why? • Misguided policy conditions through the development projects • Intervening in the market? (not enough market?) • Austerity conditions (not enough state?) • International politics? Policy conditions ignored?

29. Some reasons the IMF &the World Bank are confused • Both use conditionality • The World Bank has been known to require an IMF program be in good standing • So the conditionality may run through the IMF • Both institutions founded in 1944 @ BW, NH • Both are in DC (right next to each other) • Both do their Annual Meetings simultaneously • Head of the IMF (“Managing Director”) always a European; Head of the World Bank (“President”) always American • Both have a similar governance structure

30. World Bank Executive Board of Directors • http://siteresources.worldbank.org/BODINT/Resources/278027-1215524804501/IBRDEDsVotingTable.pdf • http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/ORGANIZATION/BODEXT/0,,pagePK:64020055~theSitePK:278036,00.html • http://web.worldbank.org/external/default/main?menuPK=395550&pagePK=64099288&piPK=64099409&theSitePK=395544 Photo taken at the Board Room, June 2009

31. http://www.worldbank.org/en/about/leadership/directors

32. WB Appointed & Elected Directors • Appointed: • US, Japan, Germany, France, UK • Elected: • China, Saudi Arabia, Russia • Regionally elected (ad-hoc) • Australia • South Pacific, New Zealand, Korea (6 years ago) • South Pacific, New Zealand, Korea, Cambodia, Mongolia • Brazil • Latin American/Caribbean countries • Africa: • French group • English group • *NEW* South Africa / Nigeria / Angola group! • Iran • Afghanistan, Algeria, Ghana, Morocco, Pakistan, Tunisia

33. Really ad-hoc elected WB Directors: • Italy • Greece, Malta, Portugal, San Marino, Albania, & Timor-Leste • Belgium • Austria, Luxembourg, Belarus, Czech Republic, Hungary, Kosovo, Slovak Republic, Slovenia, & Turkey • Netherlands • Armenia, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Georgia, Israel, Macedonia, Moldova, Montenegro, Romania, & Ukraine • Switzerland • Azerbaijan, Kazakhstan, Kyrgyz Republic,Poland, Serbia, Tajikistan, Turkmenistan, & Uzbekistan

35. How do they do it? • Foreign aid? • http://www.google.com/search?aq=f&gcx=c&sourceid=chrome&ie=UTF-8&q=preis+der+macht#pq=preis+der+macht+vreeland+borat&hl=en&sugexp=pfwc&cp=21&gs_id=k&xhr=t&q=preis+der+macht+borat&qe=cHJlaXMgZGVyIG1hY2h0IGJvcmF0&qesig=wJuY3-DudDrzGZKMo47TmA&pkc=AFgZ2tlF23YTxnM8pdeqAOvnwqxYyOnbQimVm0bbgvSNmGqwZhnGRGGE9ldzs3Od5KNAjtLuXtnBgklaN5Konxtd0jACwBxNzQ&pf=p&sclient=psy-ab&source=hp&pbx=1&oq=preis+der+macht+borat&aq=f&aqi=&aql=&gs_sm=&gs_upl=&bav=on.2,or.r_gc.r_pw.r_cp.&fp=8281380e0ebeaaac&biw=1440&bih=763 • http://www.handelszeitung.ch/konjunktur/europa/iwf-preis-der-macht

36. IMF vs WB on voting power • WB Executive Board • IBRD • http://siteresources.worldbank.org/BODINT/Resources/278027-1215524804501/IBRDEDsVotingTable.pdf • IDA • http://siteresources.worldbank.org/BODINT/Resources/278027-1215524804501/IDAEDsVotingTable.pdf • IMF Executive Board • https://www.imf.org/external/np/sec/memdir/eds.aspx

37. Why, historically, has the WB reformed votes more than the IMF? • WB faces more competition • a wide range of multilateral and unilateral institutions in promoting economic development • Only one real balance of payments crisis lender (IMF) • WB members can credibly threaten to exit

38. International politics: Does political power at the World Bank matter? • Do political considerations play a part in who the Bank lends to? • http://web.worldbank.org/WBSITE/EXTERNAL/EXTSITETOOLS/0,,contentMDK:20264002~menuPK:534379~pagePK:98400~piPK:98424~theSitePK:95474,00.html#6 • “It is true that during the Cold War years aid was politically motivated. Now, however, aid is being delivered to countries most in need and to those who show they are determined to use it well.”

39. Domestic politics in recipient countries? • Officially, how does the World Bank interfere with the political affairs of its members/clients? • (Answer: Officially, it doesn’t) • How does this influence its lending decisions? • (Answer: Again, officially, it doesn’t) • “Governance” • Even officially, however, the World Bank does try to improve “governance” • This is a euphemism for “democracy.” • Many members (e.g., China) would object if “democracy” were used

41. What is the "World Bank“as opposed to the "World Bank Group"? • International Bank for Reconstruction and Development • IBRD (often called “the World Bank”) • International Development Association • IDA – created in 1960 – concessional financing • “WORLD BANK” • IBRD & IDA are tightly connected – work as a single unit (though the terms of their loans are quite different) • International Finance Corporation • IFC – lends to private companies for private sector projects. Has its own building, own executive vice pres. & staff (more “entrepreneurial”) • Multilateral Investment Guarantee Agency • MIGA – provides insurance to private companies against political risk • ICSID – International Center for the Settlement of Investment Disputes

42. Where does the IBRD get most of its funding to lend to developing countries? • Private markets • Where does IDA get most of its funding? • Returns (interest) from IBRD loans, donor contributions

43. What are the different types of countries that the WB currently works with?

44. 6 types of countries • Countries that borrow only from IBRD • Countries that borrow only from IDA (not IBRD) • IDA/IBRD “blend” countries • Problem countries • Special cases • Too rich to borrow from the World Bank

45. Contradictions @ World Bank • Is there any irony in the World Bank’s “dream” (A world without poverty)? • It would go out of business. • Bureaucratic perspective thoughts? • Washington Consensus • World Bank has historically promoted market solutions, but its projects are non-market!

46. The debate • Planners v. Seekers • States v. Markets • Centralized v. decentralized mechanisms of allocation • http://www.youtube.com/watch?v=7fWyD24_yjA • http://www.youtube.com/watch?v=pfj7iit9Pm0 • http://www.youtube.com/watch?v=UtpiuQ0uR7s&NR=1 • http://www.youtube.com/watch?v=vQruuwuJnKE • http://www.colbertnation.com/the-colbert-report-videos/59916/march-02-2006/jeffrey-sachs • http://www.washingtonpost.com/wp-dyn/content/article/2006/02/12/AR2006021201150.html • http://www.spiegel.de/international/spiegel/0,1518,druck-363663,00.html • Contradiction? • World Bank has historically promoted “Washington Consensus”, but projects themselves are non-market solutions.

47. Who should lead the World Bank? • http://www.thedailyshow.com/watch/wed-march-16-2005/add-hawk • Wolfenson • Wolfowitz • Zoellick • … who’s next? A? • Another American?

48. Zoellick @ Gtown • http://vreelander.blogspot.com/2010/09/who-should-lead-multipolar-world-world.html • Answer: • US Congress • Global International Institutions • Between a rock & a hard place • Must make room for emerging markets • But need to keep advanced industrial countries on board • Regional option? • If emerging markets don’t have enough voice • Will they form their own international institutions? • How can the US keep them at the table, without alienating Europe?

49. Jim Yong Kim http://www.worldbank.org/ Ngozi Okonjo-Iweala

50. Two quick slides on RDB’s