Big Bank spend aid billions but neglect poverty, warns report

Published on Reuter’s AlertNet, by Rachel Baird of Christian Aid UK, 22 April 2010. – Linked with Christian Aid UK, with Thomson Reuters Foundation website, and with Reuter’s AlertNet.

Donors such as the World Bank are spending billions of dollars on projects whose effects on poverty and the environment are uncertain at best, warns a new report … //

… The new report criticises three main aspects of multilateral development banks’ (MDBs) operations:

  • Their approach is based on existing private finance approaches, emphasizing the importance of attracting foreign investment rather than developing the domestic economy.- Project selection, monitoring and evaluation techniques have tended to prioritise commercial rather than social or environmental returns. Internal evaluations have regularly found that MDBs have failed to demonstrate sufficient ‘additionality’ for their financing – meaning that they run the risk of merely replicating the activities of private lenders, rather than driving investment towards businesses or sectors that have the greatest sustainable development benefits. Multilateral lenders’ monitoring and evaluation methods have also been insufficiently focussed on poverty reduction, while their transparency and disclosure of information has been weak.
  • The rapid growth of ‘arms-length’ investments in the financial sector, through financial intermediaries such as private banks and private equity firms, is a particular cause for concern. The MDBs’ failure to clearly define the development objectives of their investments is particularly worrying in this case, where operational decisions are delegated to financial intermediaries.

The report’s recommendations include:

  • Clarification of MDB mandates, to ensure they focus on development and poverty reduction;
  • Greater transparency around the rationale for investment decisions, which should reduce the use of financial intermediaries – especially those based in opaque tax havens; and
  • A focus on ‘additionality’ and development returns, so that MDBs target areas and countries where existing private financing is weak. This would make their contribution more valuable, and put the emphasis clearly on development benefits rather than financial returns

… (full text).

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