Multilateralism under stress



Homi Kharas | Brookings Institute

The multilateral development system, led by the United States, has guided development cooperation by Organization for Economic Cooperation and Development (OECD) countries, evolving gradually through new institutions and new norms since World War II. Organized by a small group of like-minded countries, multilateralism has been a way of managing burden-sharing among donors and of delivering public goods. These functions are now under stress.

According to a poll conducted in December 2016 by the Program for Public Consultation at the University of Maryland, most Americans (59.3 percent) support the statement that “when giving foreign aid, it is best for the U.S. to participate in international efforts, such as through the United Nations. This way it is more likely that other countries will do their fair share and that these ef- forts will be better coordinated.”

However, a majority of Republican voters disagree, believing that it is better for the U.S. to provide aid on its own, to ensure control over how money is spent and to gain recognition for its generosity.This America First sentiment is most concerning because multilateral institutions are uniquely equipped to respond to today’s development challenges.

They can coordinate among multiple de- velopment actors; conduct a coherent policy dialogue with government; build partnerships with non-state actors; blend aid and loans with private capital; play an honest broker role, especially in government-business dealings; ensure transparency, consultation, and the application of best- practice safeguards in projects; and provide accountable administrative structures on finance, data, and results-evaluation.

There are two categories of multilateral institutions. One depends on grants from donor budgets, replenished every year or on a regular cycle. The U.N. agencies, various development funds like the International Development Association and African Development Fund, and vertical funds like the Global Fund, the International Fund for Agricultural Development, and Gavi, the Vac- cine Alliance fall into this category.

Multilateral development banks (MDBs), which constitute the other category, include the International Bank for Reconstruction and Development (IBRD), African Development Bank, and the Asian Development Bank. With MDBs, initial paid-in capital comes from donor budgets, but most financing comes from borrowing on capital markets.

The share of aid passing through multilateral institutions has been steady at around 30 percent, but a growing number of donor countries also make voluntary contributions (about 12.5 percent of aid flows) to multilateral entities, giving them “trust funds” to implement their own programs.

The U.S. is one of the largest users of multilateral institutions; 36 percent of its aid disbursements pass through multilaterals, with 16 percent channeled via core contributions, and the remaining 20 percent extended in the form of voluntary contributions designated for specific projects andprograms (called “multi-bi” aid).

Multilateral institution detractors worry about high overhead cost, creep and waste, and cum- bersome bureaucracy. Major shareholder countries accordingly assess multilaterals through two lenses: First, the degree to which their activities align with the national interest and, second, the effectiveness and efficiency of the agency in carrying out their mission.

Improving the effectiveness of the 192 multilaterals receiving aid today is not an easy process. Many are facing issues that in some cases may be existential. While no multilateral has been closed in the post-World War II era, U.S. leadership will determine the outcomes with conse- quences resonating for many years.


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