Remaining Relevant in the Global Lending Market - The Institutionalization of World Bank Strategy in Middle-Income Countries

Abstract

In the last two decades, the World Bank has experienced a serious decline in borrowing from the main clients of the International Bank for Reconstruction and Development (IBRD): middle-income countries (MICs). Fiscally stable and creditworthy, these countries have increasingly turned to what has become an oligopolistic lending market consisting of other multilateral banks and private capital providers. The Bank has largely embraced necessary reforms to retain its middle-income clients, outlined in the Bank’s “New Approach to Country Engagement”, as a decline in lending threatens its capital pool and knowledge base. This thesis seeks to examine variation in the Bank’s strategic engagement in similar MICs (by similar I mean in the same access to capital range). My central question is: given the Bank’s uniform interest in continued engagement and the equal benefit MICs can derive from its comparative advantages, why do some countries exhibit ad-hoc borrowing relationships, while others have consistent and coordinated, project-oriented borrowing partnerships with the Bank? I characterize these consistent and coordinated strategies as being “institutionalized.” I use a theoretical framework that attributes variation in institutionalization and its likelihood to a set of domestic political economy variables and casual explanations. I find that MICs that have stronger coordination of their national development priorities, greater crisis resiliency, weaker anti-Western and nationalistic attitudes, and more potential to transmit their development experiences and successes to the Bank – known as knowledge transfers – are able to have more institutionalized partnerships with the Bank (partnerships that encompass both the state’s borrowing plan and the Bank’s strategy). Additionally, countries that have a federal system of government open up additional space for state-level engagement, further contributing to institutionalization. The document I rely on most to capture levels of institutionalization is the Country Partnership Strategy that the Bank prepares for each client. I use Brazil, India, and South Africa – three countries with similar geopolitical and economic features – to examine the variation. The normative implications of my analysis suggest that if the Bank plans to remain relevant in an environment where new multilateral banks like the New Development Bank (the “BRICS Bank”) or the Asian Infrastructure Investment Bank will be offering similar services with comparable capital pools, it needs to narrow its selection of clients and services, and engage only in environments where institutionalization is most likely. The value for both the Bank and its borrowers will be greatest under such conditions.