List of International Financial Institutions:  1. European Investment Bank (EIB) 2. Inter-American Development Bank (IDB) 3. Asian Development Bank (ADB) 4. International Fund for Agricultural Development (IFAD).

1. European Investment Bank (EIB):

The EIB came into being in 1958 by the Treaty of Rome with the objective of integration, balanced development and economic and social cohesion of the European Union (EU) countries. It is the EU’s financing institution and enjoys financial autonomy. All EU members subscribe to the bank’s capital. It also raises funds from external markets, and finances capital projects within the EU.

2. Inter-American Development Bank (IDB):

It is a regional development bank established in 1959 within the Inter- American System. The USA provided $350 million of the Bank’s initial capital of $1 billion. The bank finances projects in Latin America and the Caribbean. Most IDB loans are made at interest rates linked to the cost of raising resources in capital markets.

3. Asian Development Bank (ADB):

It is a multilateral development financial institution, set up in 1986, with headquarters in Manila. Forty-eight of the ADB’s 67 members are developing countries. It raises funds through contributions from member-countries, bond issues in world markets (ADB has triple ‘A’ credit rating) and retained earnings. India holds 6.32% of ADB’s shares and has 5.35% of voting power. ADB’s objective is poverty alleviation and improvement in quality of life in developing member-countries. India is a founding member of the ADB.


The ADB gives financial assistance at near-market rates (through public sector loans and equity participation), technical assistance, and guarantees to projects in member- countries. It has an Asian Development Fund under which loans are given at extremely low rates (called soft loans) to ADB’s poorest member-countries. Though ADB primarily lends to governments of member-countries, it also gives financial assistance to the private sector through its complementary financing scheme. Loans under this scheme are given by commercial lenders and routed through the ADB.

Traditionally, ADB’s public sector loans have been for agriculture and rural development. It has now shifted its focus to social infrastructure and gives loans for housing, education and water supply. China is the ADB’s largest borrower with cumulative loans of USD 14.9 billion as of December 2005.

ADB’s assistance has increased over the years to meet the rising infrastructure needs of member-countries. Loan approvals in 2006 were USD 6.82 billion compared to USD 5.25 billion in 2005. It gave technical assistance to 260 projects for USD 241.6 million in 2006 compared to 299 projects for USD 198.6 million in 2005.

4. International Fund for Agricultural Development (IFAD):

It is an international financial institution and a United Nations agency, established in 1974 with an initial funding of $1 billion. Its objective is to eliminate rural poverty in developing countries by providing aid for agricultural development. It supports rural programs that empower women and the rural poor, by designing such programs, giving concessional long-term loans, giving grants to institutions that assist the rural poor, and partnering the government. It has invested $11.8 billion in poverty eradication projects across the world.


Multilateral Assistance and Developing Countries:

International lending agencies have had the following beneficial effects:

i. They help the developing countries to design policies conducive to attracting FDI.

ii. They insure political risk and stimulate private capital flows to less developed countries.


iii. They enhance the credibility of host country governments.

iv. They assist in regional economic integration.

v. They bail out countries on the verge of economic collapse.

vi. They assist countries to manage fiscal deficits and BOP problems (temporary and permanent).


vii. They finance infrastructure and developmental activities, and co- finance projects.

viii. They assist countries in opening up their economies and reducing capital controls.

ix. They provide concessional loans to the least developed countries.

x. Often they are the only source of funding for the poorest of countries.


But the conditions attached to loans are in many cases politically unpalatable, and the implementation of reforms has pushed countries into a cycle of repeated financial crises. Is the medicine worse than the cure? Worse yet, the cure may be slow in coming, or never arrive. Multilateral lending tends to be followed by increased lending by international banks. External debt balloons as countries borrow to meet their internal requirements, and a debt crisis begins to emerge.

In 1982, the external debt of Brazil and Mexico was $91 billion and $85 billion respectively. In 1982, when Mexico was on the verge of defaulting on its external debt obligations, the IMF arranged a credit to the Mexican government, and urged private banks to lend to Mexico. Private sector commercial borrowing by highly indebted countries also rises. Short-term debt as a percentage of total external debt increases.

The IMF became an integral part of debt rescheduling activities in many countries. It advocated austerity programs that included an increase in exports, fiscal discipline, and reduction in external debt, tight money policy and control of inflation. These are standard macroeconomic remedies that have had unintended consequences. They are uniform solutions that often overlooked and understated the political ramifications of austerity.