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 ABCABC institutioncountry X How are decisions made? Where is the money going?

ARGUMENT World Bank (US, Wash. Cons.) A IDB (US, but LA influence) B BNDES (domestic interest grps) C institutioncountry X (Brazil) How are decisions made? Where is the money going?

METHODOLOGY WB IDB BNDES institutioncountry BRAZIL shareholders ‘ politicking ’ delegation amount sector region power structure/instit designstrategy

BASIC FACTS WBIDBBNDES Lending since… Shareholders Shareholder power US 16.38% LA %; US % -- Brazil ’ s shares 2.07%10.752%100% Gvt guarantee√√√ MicrolendingNew, 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

SECTOR DISTRIBUTION

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 middle- income 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: % (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 : democracy, weak 1964: military coup : military regime 1985: elections, democracy restored : Jose Sarney (PMDB) : Fernando Collor de Mello (PRN) : Itamar Franco (PMDB) : Fernando Henrique Cardoso (PSDB) (re-elected 1998) : 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