Competition and Collaboration Between U.S.- and Non-Western-Led Development Banks

• In Event: The Changing Landscape of Economic Multilateralism

Abstract

The coronavirus pandemic is the first global crisis after the creation of China-led banks Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB). Yet, those multilateral development banks (MDBs) are not the first ones created outside the network of international financial institutions (IFIs) the United States (US) and its Western, advanced industrial democratic allies have sponsored since the aftermath of the World War II. MDBs such as the Latin American Development Bank (CAF) and the Islamic Development Bank (ISDB) do not rely on American sponsorship, being therefore cases of contested multilateralism as defined by Morse and Keohane (2014), in which states dissatisfied with existent IFIs gather to establish their own intergovernmental organizations (IGOs).

What do their experience in fighting the pandemic suggest about the future of multilateralism in world politics? In this paper, I argue that responses to COVID-19 have thus far demonstrated the limits of contested multilateralism insofar as Non-Western-led MDBs have collaborated with US- and/or Western-sponsored IFIs such as the World Bank Group (WBG), the Asian Development Bank (ASDB), the European Investment Bank (EIB), and the Inter-American Development Bank (IADB). Yet, as we demonstrate through a mixed-method approach that combines archival research and regression analysis, Non-Western MDBs prefer providing resources in the form of loans, grants, and technical assistance to U.S. military allies. Such a fact suggests that, apart from China, regional powers such as Saudi Arabia (ISDB’s main sponsor) and Argentina, Colombia, and Mexico (CAF’s key supporters) aim to employ collective financial statecraft to attract current American allies in world politics.

For instance, as of January 2021, the AIIB collaborated with US-sponsored MDBs in 18 (78% percent) out of 23 COVID-related projects. Logit models comprising the AIIB, the CAF, and the ISDB indicate that U.S-Military Allies are the main target of pandemic-relief funds those Non-Western-led MDBs provided. My findings therefore corroborate the argument that contested multilateralism presents a twofold characteristic. In the short-term, counterhegemonic IGOs collaborate with existent organizations. The long-term, however, opens the door for attracting hegemonic allies without necessarily compromising the stability and the unity of the international system.

With this paper, we would like to contribute to clarifying the impact of the hegemonic competition through soft-balancing (Paul 2018) upon multilateralism. Such a process precedes the pandemic but seems to have increased after it as Beijing took the lead in aiding other countries to fight COVID-19 whilst Washington still struggles to control rates of infection and death at home. This paper also contributes to understanding the politics of COVID-focused development finance MDBs provides. As contested multilateralism does not preclude collaboration, we demonstrate that the emergence of new IGOs does not hinder international cooperation even if in the long-run they have the potential to challenge the hegemon.

Author

• Vinicius G. Rodrigues Vieira, Armando Alvares Penteado Foundation (FAAP)