For Many Dollars More – Reforming multilateral lenders depends on China signing off on it. And China wants more power

Source: The post is based on the article “For Many Dollars More – Reforming multilateral lenders depends on China signing off on it. And China wants more power” published in The Times of India on 18th April 2023.

Syllabus: GS – 2: Important International institutions, agencies and fora- their structure, mandate.

Relevance: About reforming MDGs (multilateral development banks).

News: The G20 expert group, co-chaired by N.K. Singh and Larry Summers, are on the view of reforming multilateral development banks (MDBs). This expert group report should be read with another report submitted last year to G20, an independent review of MDBs’ capital adequacy framework.

About the G20 expert group on strengthening multilateral development banks(MDBs) and what are MDBs?

What is the need for MDBs reforms?

There are nine major MDBs, of which the World Bank is the most prominent. Collectively, MDBs hold about $500 billion in shareholder equity, which is used to raise more resources for concessional lending. But this available shareholder capital is not being put to optimum use.

The review of the G20 expert group concluded that MDBs can raise more resources without asking shareholders to increase their capital. This can be done by a) leveraging the callable capital (Callable capital represents a guarantee by the shareholders to backstop the institutions in case of shocks), b) Leveraging the guarantees.

What are the challenges in reforming MDBs?

The demand of China: China is the second-biggest economy in the world and generally holds the third-largest voting rights in key MDBs after the US and Japan. China wants MDBs to be a part of any debt restructuring solution. China also wants more power to control MDBs like the US and Europe gained in the past.

Unless China gets what it thinks all committees on MDBs will produce good research, but little reform.