Bernhard Reinsberg

The rise of multi-bi aid and the proliferation of trust funds

Since the end of the Cold War, development assistance has been transformed in various ways. The aid allocation and the aid effectiveness literature intensively discuss the qualitative reorientation from geopolitical towards actual poverty reduction objectives and the donors’ related geographical and sector choices. The introduction of the Millennium Development Goals (MDGs), the World Bank’s Poverty Reduction Strategies (PRS), and the new principles for aid developed in the context of the Paris Declaration have all triggered important dynamics that also found a corresponding reflection in the literature.

Multi-bi Aid in European Development Assistance: The Role of Capacity Constraints and Member State Politics

We analyse the patterns of multi‐bi aid in the European Union. Using newly available multi‐bi aid data and a large number of staff interviews at the European Commission, the World Bank and bilateral donors, we draw three conclusions. First, the Commissions capacity constraints and lack of specific expertise have prevented it from becoming an important host of trust funds like other international development organizations. Second, the same capacity constraints can generally explain its extensive participation in trust funds at other international development organizations. In the case of large global funds, however, Commission participation often reflects the outcome of member state politics. Third, once the Commission delegates its aid to multilateral agencies, it does not impose strong substantive earmarking, but requires a high level of legal and administrative controls.

Impact of International Monetary Fund programs on child health

Significance This study adds to the state of the art by analyzing the impact of International Monetary Fund (IMF) programs on children’s health, mediated by their parents’ education. It is the first to combine macrodata and microdata to address this issue systematically across five dimensions of child health: water, malnutrition, shelter, sanitation, and health care access. The sample represents about 2.8 billion (about 50%) of the world’s population in year 2000. Using multilevel models, we find that, although IMF programs do not correlate directly with child health indicators, they reduce the protective effect of parental education on child health, especially in rural areas, and have a mixed impact across the five dimensions of urban child health. Parental education is located at the center of global efforts to improve child health. In a developing-country context, the International Monetary Fund (IMF) plays a crucial role in determining how governments allocate scarce resources to education and public health interventions. Under reforms mandated by IMF structural adjustment programs, it may become harder for parents to reap the benefits of their education due to wage contraction, welfare retrenchment, and generalized social insecurity. This study assesses how the protective effect of education changes under IMF programs, and thus how parents’ ability to guard their children’s health is affected by structural adjustment. We combine cross-sectional stratified data (countries, 67; children, 1,941,734) from the Demographic and Health Surveys and the Multiple Indicator Cluster Surveys. The sample represents ∼2.8 billion (about 50%) of the world’s population in year 2000. Based on multilevel models, our findings reveal that programs reduce the protective effect of parental education on child health, especially in rural areas. For instance, in the absence of IMF programs, living in an household with educated parents reduces the odds of child malnourishment by 38% [odds ratio (OR), 0.62; 95% CI, 0.66–0.58]; in the presence of programs, this drops to 21% (OR, 0.79; 95% CI, 0.86–0.74). In other words, the presence of IMF conditionality decreases the protective effect of parents’ education on child malnourishment by no less than 17%. We observe similar adverse effects in sanitation, shelter, and health care access (including immunization), but a beneficial effect in countering water deprivation.

Trust Funds as a Lever of Influence at International Development Organizations

Trust funds – broadly defined as financial vehicles to channel development funding earmarked for specific purposes through international development organizations – have grown substantially over the past two decades. Reflecting the variety of trust fund purposes and related governance arrangements, an emergent literature emphasizes a diversity of reasons underlying this growth. This paper proposes a simple – yet encompassing – explanation applicable to all kinds of funds: donors use trust funds to wield ‘influence’ – leveraging financial resources to alter the policies of multilateral organizations. Based on interviews at the World Bank, the study shows that influence is a dominant motive behind trust funds, though the capacity and willingness to wield influence varies across donors. Influence is a salient motive especially for medium-sized donors and emerging donors but surprisingly less so for large donors. In addition, attempts of influence are most effective when donors promote new thematic issues that did not previously feature Bank assistance and outside established programs. Concerns among stakeholders about undue donor influence are highest with respect to the global knowledge work of the World Bank but are virtually absent when involving donors in the operational activities at the country level.

The Implications of Multi-bi Financing for Multilateral Agencies: The Example of the World Bank

Over the last decade, earmarked voluntary contributions to international development organizations (referred to as multi-bi financing in this chapter) have become a significant source of donor funding. Reinsberg discusses how multi-bi financing channeled through trust funds shapes the organizational practices of multilateral agencies, using evidence from a large number of interviews conducted at the World Bank. The analysis covers seven types of possible consequences raised by a primarily policy-driven literature, including differences in the portfolio of activities of trust funds and core resources, the alignment of trust-funded activities with development needs, undue donor influence upon agency operations, insufficient recovery of maintenance costs, long-term budget implications, transaction costs and administrative burdens, and institutional fragmentation.

The Implications of Multi-Bi Financing on International Development Organizations: The Example of the World Bank

Over the last decade, multi-bi financing has become a significant source of funding for international development organizations. This paper discusses how multi-bi financing channeled through trust funds shapes the organizational practices of multilateral agencies, using evidence from a large number of interviews conducted at the World Bank. The analysis covers seven issue areas, including differences in the portfolio allocation of trust funds and core resources, potential for misalignment with development needs, donor influence upon agency operations, recovery of maintenance costs, long-term budget implications, transaction costs and administrative burdens, and institutional fragmentation inside the organization.

Sovereign Wealth - No Fund

Sovereign Wealth Funds (SWFs), government-owned investment funds, are of growing importance in international finance. They are a vehicle to manage foreign exchange reserves and wealth which have been accumulating in the emerging world, particularly in the BRICs. However, while China and Russia set up SWFs over the last decade, India and Brazil still lack such funds. In analysing thoroughly the Indian case, this paper seeks to contribute to recent literature on the determinants of SWFs with two main findings: First, it confirms conventional economic theory which shows the requirement of excessive foreign reserves for the set-up of SWFs. Second, it suggests that political systems matter, as demonstrated by the lively debate in India on whether that country should have such a fund. In this way, influential societal actors, in particular the central bank and regulating agencies as well as business associations, have dominated the public discourse and successfully lobbied the government to waive initial plans in support of an alternative wealth management scheme.

Guns and butter? Military expenditure and health spending on the eve of the Arab Spring

ABSTRACT We examine the validity of the guns-versus-butter hypothesis in the pre-Arab Spring era. Using panel data from 1995 to 2011 – the eve of the Arab uprisings – we find no evidence that increased security needs as measured by the number of domestic terrorist attacks are complemented by increased military spending or more importantly ‘crowd out’ government expenditure on key public goods such as health care. This suggests that both expenditure decisions were determined by other considerations at the government level.

Two Parties - Less Cake? Divided Government and Multilateral Aid

This paper investigates the effect of divided government on the share of official development assistance (ODA) that is given multilaterally. It uses intra-governmental fragmentation to capture divided government in parliamentary systems, developing two rival hypotheses with respect to the effect of divided government on the share multilateral aid. On the one hand, the share of multilateral aid may increase as cabinet parties seek to overcome gridlock through delegation. On the other hand, increased fragmentation may incite cabinet parties to revoke delegated authority and to conclude inefficient logrolls in bilateral aid. The paper subsequently assesses these hypotheses using a dataset with twenty OECD donors from 1960 to 2002. Empirical results show that intra-governmental fragmentation decreases the share of multilateral aid. The findings hold for alternative specifications of the predictor, various econometric specifications, and estimation methods. As to the causal mechanism, divided government does not generate gridlock, but incites cabinet parties to inflate the bilateral aid portfolio, which explains the relative decline in multilateral aid. These results imply that domestic politics and specific institutional settings that involve shared decision-making authority in the executive deserve more thorough attention by students of foreign policy outcomes.

Rewarding Democratization? The Dynamics of General Budget Support in the Wake of Democratic Transitions

Budget aid has become a popular instrument of official development assistance (ODA) since the 1990s, as it holds a promise of enhanced aid effectiveness due to recipient-country ownership and reduced fragmentation. However, it potentially provides incentives for recipient-country governments to misuse these funds. For this reason, in addition to institutional prerequisites, donors have explicitly introduced political conditions such as respect for human rights and democratic governance for budget aid. Donors should be more inclined to give budget aid to democracies and democratizing countries, since democracy ensures increased accountability of executive leaders and a reallocation of fiscal resources towards public goods in favor of development. With this expectation in mind, significant steps towards democratization should be rewarded with general budget support, at least when the initial period of political instability has waned. Using 143 recipients of ODA in the period from 1995 to 2009, the paper explores the evolution of general budget support in the wake of democratization through various quantitative approaches. It turns out that previous non-recipients of budget aid are significantly more likely to be selected for general budget support in the year after a polity improvement (by about 24 percentage points). Conversely, established recipients enjoy short-term rewards for polity improvements already in the immediate run-up to a polity reform (by about 90 percent). With respect to the long-term effect of stable democratization, results are always insignificant, which may mask considerable heterogeneity in the responses of budget aid to democratization that would need further analysis.