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

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  • Chris Humphrey

    (University of Zurich)

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.

Suggested Citation

  • Chris Humphrey, 2017. "He who pays the piper calls the tune: Credit rating agencies and multilateral development banks," The Review of International Organizations, Springer, vol. 12(2), pages 281-306, June.
    • Handle: RePEc:spr:revint:v:12:y:2017:i:2:d:10.1007_s11558-017-9271-6
    DOI: 10.1007/s11558-017-9271-6
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    References listed on IDEAS

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    Cited by:

    1. Galindo, Arturo J. & Panizza, Ugo, 2018. "The cyclicality of international public sector borrowing in developing countries: Does the lender matter?," World Development, Elsevier, vol. 112(C), pages 119-135.
    2. Alvaro Mendez & David Patrick Houghton, 2020. "Sustainable Banking: The Role of Multilateral Development Banks as Norm Entrepreneurs," Sustainability, MDPI, vol. 12(3), pages 1-21, January.
    3. Fleiss, Pablo, 2021. "Multilateral development banks in Latin America: Recent trends, the response to the pandemic, and the forthcoming role," Studies and Perspectives – ECLAC Office in Washington 46916, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Chris Humphrey, 2019. "‘Minilateral’ Development Banks: What the Rise of Africa's Trade and Development Bank says about Multilateral Governance," Development and Change, International Institute of Social Studies, vol. 50(1), pages 164-190, January.
    5. Adrian Robert Bazbauers & Nadeen Madkour, 2024. "Gender and the Multilateral Development Banks: From WID to GAD to Retroliberal WID," Progress in Development Studies, , vol. 24(2), pages 165-184, April.
    6. Avellán, Leopoldo & Galindo, Arturo J. & Lotti, Giulia, 2021. "Sovereign external borrowing and multilateral lending in crises," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 206-238.
    7. Adrian Robert Bazbauers, 2022. "Translating climate strategies into action: An analysis of the sustainable, green, and resilient city action plans of the multilateral development banks," Development Policy Review, Overseas Development Institute, vol. 40(2), March.
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    9. Alexandra O. Zeitz, 2021. "Emulate or differentiate?," The Review of International Organizations, Springer, vol. 16(2), pages 265-292, April.

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