The Review of International Organizations

, Volume 12, Issue 2, pp 281–306 | Cite as

He who pays the piper calls the tune: Credit rating agencies and multilateral development banks

Article

Abstract

Multilateral development banks (MDBs) have proved to be one of the most popular and enduring forms of international organization ever created, in large part because of their unique financial model. MDBs raise most of the resources needed for operations from international capital markets rather than government budgets, which greatly increases their financial capacity and attractiveness to member governments. However, this model has a trade-off: MDBs must pay close attention to the perceptions of bond investors, who have little interest in development goals. This paper explores the influence of credit rating agencies (CRAs) on MDB operations, based on an analysis of the methodologies used by CRAs to evaluate MDBs and interviews with MDB financial staff and CRA analysts. The study demonstrates that the methodology used by Standard and Poor’s seriously undervalues the financial strength of MDBs, limiting their ability to pursue their development mandate. These findings suggest that MDB dependence on capital market financing may weaken the ability of major shareholder governments to fully control MDB activities.

Keywords

Multilateral Development World Bank Capital markets Credit rating agency Standard and Poor’s 

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Interviews

    Rating Agencies

    1. Anonymous former lead MDB analyst, one of Big Three CRAs, 1 June 2015Google Scholar
    2. Élie Heriard Dubriel, Senior Director, Sovereigns, Standard and Poor’s, 1 July 2015Google Scholar
    3. Steven Hess, Moody’s, senior vice president, sovereign risk group, 23 June 2015Google Scholar

MDBs

    AfDB

    1. Riadh Belhaj, Credit risk group, 24 June 2015Google Scholar
    2. Trevor de Kock, Treasury, 26 June 2015Google Scholar
    3. Tim Turner, Chief risk officer, 12 June 2015Google Scholar

AsDB

  1. Toby Hoschaka, Head of policy, Treasury, 25 June 2015Google Scholar
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CAF

  1. Gabriel Felpeto, Director of financial policy and international bond issues, 18 June 2015Google Scholar
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EBRD

  1. David Brooks, Deputy Director, Financial Strategy and Business Planning, 13 June 2015Google Scholar
  2. Isabelle Laurent, Deputy treasurer and head of funding, 13 June 2015Google Scholar

IDB

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World Bank

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Other

  1. Anonymous Executive Director, World Bank, 25 January 2011Google Scholar
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  3. Senior operations official, major regional MDB, anonymity requested, 11 September 2015Google Scholar

Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.University of ZurichZürichSwitzerland

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