1. Major donors, World Bank, and Premier borrowers: the political economy of the World Bank’s loan allocation
What factors affect the “power” of major donors in exerting their influence in international organizations (IOs)? While previous studies analyzed this question mainly from IO’s governance structure and bureaucracy theory, I argue that the funding structure of IOs could also play a crucial role. When IO relies more on market financing relative to donor’s capital contribution, it becomes more market-driven and less tolerant to donor’s intervention. As a result, the ability of major donors to affect the IO’s decision is likely to decline. Using the World Bank’s two main lending windows, soft loan window (IDA) and hard loan window (IBRD), with very different business models and funding structures as a typical case, I find that major donors (G-7 countries) are more capable of affecting the loan allocation in IDA than IBRD to realize their private interests. I interpret this as the impact of financing constraint on World Bank’s behaviors. In addition, I also find that IBRD lends more to premier borrowers (large country with low risk), which helps IBRD to maintain financial stability and sustainable operation. The findings are important for us to understand the World Bank and other IOs’ behaviors as well as the impact of funding structure on the power dynamics in IOs.
2. The Bargaining Power of Borrower Countries and the World Bank’s Conditionality
Where does the bargaining power of borrower countries in the World Bank come from? Does the bargaining power enable the borrower countries to receive less stringent loan conditions? I argue that the bargaining power of borrower countries is related to their financial importance to the World Bank. While the capital contribution is the most direct form of financial contribution, borrowers also make other forms of financial contributions to help the World Bank maintain financial stability and fulfill the development mandate. Premier borrowers, the large and creditworthy borrowers, make much more financial contributions to the World Bank than other borrowers, thus they gain higher bargaining power as well. Such bargaining power helps the premier borrower countries to receive favorable treatment from the World Bank. Through analyzing the World Bank’s policy loan conditions from 2005 to 2021 with a new framework, I find that premier borrowers are likely to receive less stringent conditions. The finding is important for us to understand the power dynamics in the World Bank beyond the formal governance structure.
Zhai Zheng 