different outcomes. The paper then discusses how the RDBs were founded and the role played by
the borrowing and non-borrowing members to create it. After laying out the foundations the
paper examines how voting and membership affects policy outcomes, what are the various
membership schemes that can allow a more participation by all shareholders – including
borrowing members, and under what circumstances we can expect this type of participation to
take place.
Why States Cooperate to form IFIs?
There are numerous ways for wealthy states to assist developing nations. The original
purpose of multilateral financial institutions was to overcome market failure. Especially in the
aftermath of WWII, it was understood that the market must be assisted in helping less developed
and war-affected countries reach an economic equilibrium that would enable them to participate
as partners in the international market.
In comparison to coordination efforts in economic and development policies (e.g.
OECD), multilateral financial institutions, such as RDBs, can be placed further along the
“cooperation axis”: Their job includes more than transparency of policy, provision of
information, and coordination. They are actively involved in making loans and setting policy for
financial assistance to developing nations. Their contributions set standards for investment in
developing countries, facilitate financial flows by providing guarantees where risk would
otherwise pose a problem, and help attract other, private sources of investment. These
institutions strive to function as an independent entity and not a political arena for the interaction
of member states. However, since member states are shareholders and ultimate decision-makers,
the relative power of these states is significant and their interaction is prone to political
considerations dictated by the governments at home.
Thus, multilateral financial institutions are a strong case of cooperation – an institution,
not only set up to coordinate and review, but also to share in the decision-making and policy in
assisting developing nations. These institutions make loans in the name of the institution as a
whole, not from one specific country that is a member of the institution. What makes nations
fund such institutions and entrust their support in a multilateral setting? (Rodrik 1995; Milner
2004). The ongoing debate about cooperation – is it possible, why and when it happens, and
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Convention