Multilateral Development Banks and Governance Reforms: A proposed approach

Benedicte Bull

Working Paper Nr. 1999.4

Abstract

In the 1990s, multilateral development banks (MDBs) introduced lending policies to improve governance in their borrowing member countries. Governance reforms are viewed both as goals in themselves and as prerequisites for successful implementation of market-oriented reforms. However, they pose some major challenges to the MDBs. First, they do not get legitimacy from the backing of a theory such as that provided by neo-classical economics for the earlier market-oriented reforms. Second, governance reforms involve a reform of the sate apparatus and the political system in the borrowing countries. Both issues point to a potential conflict with the apolitical charters of the MDBs. The governance agenda also poses challenges to political science theory. Most importantly, it challenges the distinction of the world into two distinct spheres-one domestic and one international-with different systems and possibilities for governance. This essay discusses some ontological and epistemological assumptions underlying the governance agenda of the MDBs and proposes elements of an alternative approach. It is argued that the search for generalizations and "laws" that has characterized the knowledge foundation of previous structural reforms, must be abandoned. A critical political economy framework as pioneered by Robert Cox is argued to be fruitful because it allows us to look at governance as a transnational rather than domestic issue, and it gives us a means to understand how governance structures change. The discussion is limited geographically to Latin America. Consequently, the MDBs in focus are the World Bank and the Inter-American Development Bank, and the discussion of the relation between governance reforms and earlier market-oriented reforms is focused on the Latin American experience.