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Wednesday, December 22, 2010

Multilateral Development Banks: How the United States Makes and Implements Policy

Jonathan E. Sanford
Specialist in International Trade and Finance

This report analyzes how the United States makes policy towards the multilateral development banks (MDBs) and identifies ways by which Congress can shape U.S. policy and influence the activities of the banks themselves.

In 2011, Congress may be asked to consider legislation that would authorize U.S. participation in capital increases for the MDBs. If Congress agrees that the United States should participate in these new capital increases, the United States will be asked to subscribe to capital stock worth about $56.9 billion over the next several years, of which about $2.2 billion would be “paid in” by the United States. The capital increases will substantially expand the size of the MDBs – in several instances doubling or tripling their resources. The MDBs are planning to double or more their annual volume of lending and to substantially expand the scope of their operations. If the United States participates in the proposed capital increases, its financial commitment to the MDBs will grow. If it does not participate, its level of influence in these institutions will decline. The United States does not have enough voting power to block such increases from taking effect.

In 2009, the MDBs agreed to provide over $114 billion in assistance to developing countries. The United States is the largest or one of the largest members in each MDB and its financial commitments are substantial. However, because the MDBs finance most of their operations with money borrowed in world capital markets, the actual payments the United States and other member countries make to them is relatively small. In fiscal years 2009 and 2010, payments to MDBs averaged about 5% (about $1.5 to $2 billion annually) of all U.S. foreign aid.

The executive branch and Congress share responsibility for U.S. policy towards the MDBs and each has primary control over a different part of the policy process. The Administration is responsible for negotiating with other countries and for managing day-to-day U.S. participation in the MDBs. Congress has ultimate authority over the level of U.S. financial commitments and the criteria that govern U.S. participation in these institutions.

Congress has authorized the President to direct U.S. participation in the MDBs, and the President has delegated that authority to the Secretary of the Treasury. Other agencies also have reasons for being concerned about U.S. policy and the MDBs, but there is no formal process by which interagency views on MDB issues is coordinated.

Authorizing legislation is managed by the House Financial Services Committee and Senate Foreign Relations Committee. The House and Senate Appropriations Subcommittees on State, Foreign Operations and Related Programs handle the appropriations. Since 1981, MDB legislation has become law through the regular legislative process only once. Usually it is enacted as a rider to other legislation. Congress exercises its influence over MDB policy through its control over authorizations and appropriations and through oversight. The authorizing committees have included in MDB authorizing legislation many directives which affect the goal and direction of U.S. policy. Congress has also used its control over the funding process – its “power of the purse” – to set priorities and encourage the Administration and MDBs to consider changes in their policies or procedures. Congress has used hearings and required reports to get information about U.S. policy and the MDBs onto the public record and to draw the Treasury Department’s attention to issues of pressing concern. Since the Administration knows it must come to Congress for future authorizations and MDB funding, the views expressed by Congress through hearings have often had an impact on the focus and direction of U.S. policy regarding particular concerns

Date of Report: December 17, 2010
Number of Pages: 21
Order Number: R41537
Price: $29.95

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