For Immediate Release: April 26, 2001
Contact: Julie Shaw, Carnegie Endowment, 202-939-2211 or
Rachel Menezes, Inter-American Dialogue, 202-463-2577
  • Given the immaturity of their financial institutions, the vulnerability of their markets, and the volatility of global finance, EME access to private capital can be unreliable, limited and costly. Loans from MDBs can encourage public investments, such as in education and health, with high social and economic returns.

  • Lending promotes useful policy changes and adherence to international standards. Officials from countries such as Mexico, Turkey, Thailand, and Korea repeatedly have said they highly value the economic analysis of MDB staff and the dialogue on tough internal policy and budget choices that accompanies the lending process.

  • For the United States and other non-borrowing member countries of the MDBs, the benefits of MDB lending to EMEs are substantial and are not costly to their taxpayers. In an increasingly interdependent global economy, non-borrowing members of the MDBs have a substantial stake in the policy choices of the EMEs, whose social and economic decisions affect the residents of rich countries. Meanwhile, the cost to the United States and other non-borrowing members is surprisingly small.

  • Lending to emerging markets does not crowd out, but rather indirectly supports, lending to poorer countries. Loans to the EMEs should not be considered one-for-one substitutes. The commission found that greater lending to poor countries-like Egypt, Jamaica, Jordan, and Morocco-which have no access to private markets is constrained by absorptive capacity or policy shortcomings, not by insufficient MDB capital.

Commission members recommended changes in longstanding practices of the banks in four areas:

1) Graduation should be voluntary but coupled with incentives to avoid prolonged dependence. The MDBs should increase further the incentive to graduate and develop systematic policies for pricing advisory services.

2) The credibility and effectiveness of lending as a vehicle for policy change needs to be enhanced.

a) MDBs should simplify policy conditionality, focus it more consistently on equity as well as growth issues, and desist from lending in the first place when a borrower is not committed to the policy change it is promising. Once conditions are agreed upon, the MDBs should be prepared to halt disbursements if governments fail to honor commitments.

b) To support a sustained reform process, policy conditions under discussion should normally be open to public debate.

c) Shareholders should also create a mechanism for independent, third-party evaluation of the effectiveness of MDB programs in the EMEs, and whether such programs encourage adequate norm setting, increased attention to poverty reduction, and better policies and stronger institutions generally.

3) The MDBs should be ready to lend to emerging economies during times of market and economic crisis but should do so in a manner consistent with the design and consolidation of medium-term development programs.

4) MDB shareholders should strengthen their relationships with the private sector. In the last decade, most EMEs have dramatically reduced the role of government in the economy. Given the EMEs' needs and the increased willingness of private lenders and investors to accept commercial risks, MDB shareholders should endorse expanded lending to the private sector and other non-sovereigns in a manner that catalyzes, rather than substitutes for, private lending.

Looking ahead, the commission discussed the possibility of a development financing model for the 21st century in which all of the owners (financials backers) are also borrowing members, following the examples of the Andean Development Corporation and the Nordic Investment Bank. A multilateral EME financing institution would not substitute for the World Bank and other multilateral development banks in their lending role or as vehicles to promote policy change, institution building, and poverty reduction. But, an EME borrowers' club could complement the existing institutions, providing this group of countries a mechanism to completely "own" investments and set their own collective development agenda.

Preparation of the report was led by Nancy Birdsall, senior associate at the Carnegie Endowment for International Peace, with the collaboration of Shahid Javed Burki, chief executive officer of EMP Financial Advisors, and Peter Hakim, president of the Inter-American Dialogue. The report can be downloaded from the Carnegie Endowment's web site at and from the Inter-American Dialogue's web site at The transcript of the April 26 press conference will also be available on the Carnegie Endowment's web site.

Paul Volcker, former U.S. Federal Reserve chairman, will be speaking on the commission report and the World Bank Spring Meetings on Tuesday, May 1, 2001 at 12:45 PM (E.S.T.).

On the eve of the World Bank/IMF meetings, a blue ribbon commission--chaired by former U.S. Federal Reserve Chairman Paul Volcker and former Mexican Finance Minister Jose Angel Gurria--urged the World Bank and its four regional development banks not to end their lending to emerging market economies. Download the report (PDF format). Listen to the event (RealAudio).