Download Preferences, Variance, and Politics of Multiple Lenders: The Case of

Preferences, Variance, and
Politics of Multiple
Lenders: The Case of Brazil
Ruth Ben-Artzi
Department of Political Science
Providence College
Prepared for IPES, College Station, TX
11/14/09
RESEARCH QUESTION
IS THERE UTILITY IN HAVING
MULTIPLE PUBLIC DEVELOPMENT
BANKS SERVE THE SAME COUNTRY?
CONSIDERATIONS:
DO BANKS MAKE LOANS TO THE SAME
SECTORS IN A GIVEN COUNTRY
DO BANKS OF A DIFFERENT GLOBAL-STATE
LEVEL HAVE DIFFERENT DECISION-MAKING
CALCULUS
THREE INSTITUTIONAL LEVELS
The world bank (WB)
Inter-American development bank
(IDB)
Brazilian development bank
(BNDES)
All make project/program loans to Brazil
WHY IS THIS IMPORTANT?
Countries spend billions of $ on aid
Is the (political) involvement of
shareholders influential in different
ways for the three institutional levels?
No study of how different multilateral
financial institutions (that aid the same
country) compare to each other
Who benefits from the existence of
multiple development banks?
LITERATURE
IFIs are a platform for advancing
political interests of principal
member states (Vreeland, Stiglitz, Easterly,
Thacker)
Governance of IFIs: the extent of
delegation by member states (Tierney
et al, Martin, Gould)
Why states have an interest in
membership in IFIs (Rodrik, Milner)
ARGUMENT
institution
country
A
B
X
C
How are decisions made? Where is the
money going?
ARGUMENT
institution
country
World Bank (US, Wash. Cons.) A
IDB (US, but LA influence)
B
BNDES (domestic interest grps) C
How are decisions made? Where is the
money going?
X (Brazil)
METHODOLOGY
institution
country
WB
IDB
BRAZIL
BNDES
power structure/instit design
strategy
•shareholders
•amount
•‘politicking’
•sector
•delegation
•region
BASIC FACTS
WB
IDB
BNDES
Lending since…
1949
1961
1953
Shareholders
185
48
1
Shareholder
power
US 16.38%
LA 50.016%;
US 30.007%
--
Brazil’s shares
2.07%
10.752%
100%
Gvt guarantee
√
√
√
Microlending
New, not much,
through IFC
New, not much,
through the IIC
yes
mission
“global poverty
reduction and the
improvement of living
standards”
“contribute to the
acceleration of the
process of economic
and social development
of the regional
developing member
countries, individually
and collectively”
“foster sustainable and
competitive
development in the
Brazilian economy,
generating employment,
while reducing social
and regional
inequalities”
LOANS TO BRAZIL
$6,000.00
$5,000.00
$4,000.00
$3,000.00
World Bank
IDB
$2,000.00
$1,000.00
year
05
20
01
20
97
19
93
19
89
19
85
19
81
19
77
19
73
19
69
19
65
19
61
19
57
19
53
19
19
49
$0.00
LOANS TO BRAZIL
$18,000.00
$16,000.00
$12,000.00
Total WB
$10,000.00
Total IDB
$8,000.00
total BNDES
$6,000.00
$4,000.00
$2,000.00
$0.00
19
49
19
54
19
59
19
64
19
69
19
74
19
79
19
84
19
89
19
94
19
99
20
04
$ (million)
$14,000.00
Year
2005-7 SECTOR DISTRIBUTION
0, Agriculture/Rural Development
0, Energy and Mining
0, Financial Sector/Economic Policy
1, Environment/Pollution1, Multi-sector Credit and Pre-investment
1, Public Sector/Governance
0, Infrastructure
1, Social Investment
2, Health, Nutrition, and Population
2, Microenterprises
2, Private Sector Development
2, Science and Technology
3, Education
3, Industry and Trade
3, Tourism
3, Urban Development
0
1,000
2,000
3,000
4,000
5,000
0
1,000
2,000
3,000
4,000
5,000
0
1,000
Brazilian Development Bank
Interdevelopment Bank
Graphs by var7 and sectorname
2,000
3,000
4,000
5,000
0
1,000
2,000
World Bank
3,000
4,000
5,000
INTERVIEWS
Multilateral development banks
should not be lending to Brazil
Brazil is a safe borrower
Banks need to show success
FINDINGS
Global, regional and domestic
development banks all do the same
work
These institutions overlap and compete
with one another
Aid/development projects are the same
despite different institutional
configurations (power
structure/institutional design)
CONCLUSIONS
It is not clear that there’s a need for
multiple public lenders to middleincome emerging markets
A domestic development bank appears
more effective despite its politicization
It seems the IFIs’ potential as a policy
tool for principals sustains their
continued loan-making to Brazil
Brazil has influence
Preferences, Variance, and
Politics of Multiple
Lenders: The Case of Brazil
Ruth Ben-Artzi
Department of Political Science
Providence College
Prepared for IPES, College Station, TX
11/14/09
Variables and measurements
(methodology 2)
major shareholders/Brazil’s shares
negotiations (how decisions are made)
% of loans to sector
% of loans to region
President/political party in power
major trading partners
Regional-level socio-economic indicators (to
test for alternative explanation – need based)
WB (Mission and Functions)
IBRD and IDA: “Global poverty
reduction and the improvement of living
standards.”
~promote long term growth
~promote investment
~more urgent projects dealt with first
~not to compete with other sources of
financing
IBRD
185 members
Making loans since 1945 (Brazil member
since 1946)
Shareholders: Brazil 2.07%; US 16.38%
Developed countries hold majority of
votes
IDB (Mission and Functions)
“contribute to the acceleration of the process
of economic and social development of the
regional developing member countries,
individually and collectively”
~Use funds raised in financial markets, its own
capital and other available resources to finance the
development of its borrowing member countries;
~ Supplement private investment when private
capital is not available on reasonable terms and
conditions; and
~ Provide technical assistance for the preparation,
financing and implementation of development
projects, programs and strategies.
IDB
Started making loans in 1961
Lends more to Brazil than the WB
Sometimes works with the BNDES
Shareholders: Majority to LA countries
(50.016%); US has veto (30.007% - more
than any other country)
Brazil’s vote share: 10.752% (together with
Argentina is largest regional voter; next is
Mexico with 6.912%)
BNDES
Federal development bank
Issues loans at low cost
Financed small projects/micro-lending
Receives $1bn annually from the IDB
Brazil - politics
1960-4: democracy, weak
1964: military coup
1964-1985: military regime
1985: elections, democracy restored
1985-1990: Jose Sarney (PMDB)
1990-2: Fernando Collor de Mello (PRN)
1992-4: Itamar Franco (PMDB)
1994-2002: Fernando Henrique Cardoso
(PSDB) (re-elected 1998)
2002--: Lula da Silva (PT) (re-elected 2006)
Brazil Loan Data Sector
Variables
1-Agriculture/Rural
Development
2-Urban Development
3-Infrastructure – Sanitation,
Transportation
4-Environment/Pollution
5-Private Sector Development
6-Public Sector/Governance
(Reform/Modernization of the
State)
7-Social Investment –
Development, Protection
8-Financial Sector/Economic
Policy
9-Education
10-Health, Nutrition, and
Population
11-Energy and Mining
12-Industry and Trade
13-Science and
Technology
14-Multi-sector Credit and
Pre-investment
15-Tourism
16-Microenterprises