June 23, 2022

Yesterday we sent the following memo to USAID Administrator Samantha Power, outlining opportunities for USAID to advance US development policy through better coordination with multilateral development banks. The text of the memo follows:

Background

The World Bank and other multilateral development banks (MDBs) are historically underutilized assets when it comes to USAID’s development objectives across a wide range of sectors and initiatives. Your high-level engagement with World Bank leadership acknowledges the promise of the bank as a powerful collaborator, but there are significant barriers at USAID to more effective partnership with the MDBs. This suboptimal relationship is due to governance choices made at the founding of the MDBs and enshrined in US law. As you know, the US Treasury Secretary is designated as the “governor” of each MDB and the Under Secretary of State as the “alternate governor,” empowering these two agencies with all decision-making authority related to US government participation in the MDBs. With no formal role in MDB governance, USAID has made do with ad hoc approaches to engagement, relying on participation in MDB trust funds, staff-level representation in some of the offices of the US executive directors at the MDBs, and pursuit of narrow statutory reporting requirements.

Other countries’ governance choices are instructive and suggest what may be lost in the absence of a more robust role for USAID. The United Kingdom designates the Foreign, Commonwealth & Development Office, the same office with responsibility for bilateral aid programs, with the MDB governor role. The UK finance minister plays the role of alternate governor. In practice, UK decision-making at the MDBs is much better integrated with decisions related to the bilateral aid program, and policy stances at the MDBs draw directly on a much deeper knowledge set compared to US policy led by the Treasury.

The choice of governance model deserves a deeper treatment of costs and benefits than we offer here. Instead, we start from the premise that any statutory change in US governance is highly unlikely. A modest effort to designate USAID as alternate governor at the regional MDBs a decade ago failed, despite general agreement among leading agencies. Governance changes would require enabling legislation, which has proved to be a barrier to reform.

Recognizing this, we offer instead a set of recommendations that USAID could implement largely within its own purview, or with a modest degree of cooperation from Treasury and State. With these changes, we believe USAID would be better positioned to benefit from the World Bank and other MDBs as development actors and, in turn, better shape US policy at the multilateral institutions by bringing to bear the experience and priorities of the world’s largest bilateral aid agency.

The MDBs, and the World Bank, in particular, bring unique value to a number of pressing issues in the form of large-scale financing, strong country relationships, and readily deployable technical assistance. Recent high-level meetings between USAID and MDB leadership covering subjects such as pandemic response, climate change, and food security suggest these MDB assets are increasingly prioritized within USAID. And the agency has a long history of establishing and contributing to MDB trust funds. But a more integrated and systematic approach to engagement could improve the complementarity of US development efforts supported through bilateral and multilateral channels and benefit US policy leadership in the MDBs.

Recommendations

Establish a clear home at USAID for collaboration with the MDBs:

We recommend USAID’s Bureau of Policy, Planning, and Learning (PPL) be the strategic home for agency engagement with the bank. PPL possesses the long-term, high-level perspective on US development policy to effectively shepherd complementary USAID collaboration with MDBs. USAID could also bring in relevant Regional Bureaus to provide policy input, especially with regard to the regional MDBs, such as the African Development Bank.

Improve incentives for USAID staff within the Office of the US Executive Director (ED) of the World Bank (IBRD):

At present, the US ED’s office at the World Bank is comprised of one senior advisor and four advisors detailed from the US Treasury Department (these five positions are paid for by the World Bank at a significantly higher pay scale, which helps to incentivize high performing Treasury staff to seek out the position). USAID, State, and Commerce each deploy advisors, but these positions are paid for by the respective agencies on the lower General Schedule pay band. A politically appointed Executive Director heads the office. There is also an Alternate Director slot reserved for a political appointee but, in practice, this position is rarely filled in tandem with the ED slot.

The Administrator should consider advocating for a World Bank-funded USAID Senior Advisor in the US ED’s office to better elevate USAID expertise on development policy and US global development goals. This would allow USAID to field a senior staff member who could work on a broader range of policy issues and have a direct line to the ED and Treasury. (In practice, the USAID advisor tends to focus on project transactions or discrete USAID initiatives.)

This will require working with the US Treasury to potentially grow USAID’s footprint, requiring Treasury to cede some portion of the office headcount currently reserved for department staff.

Work with Treasury counterparts to actively engage in negotiations of policy packages that accompany IDA replenishments:

The key mechanism for setting US policy objectives at the World Bank, particularly for lower-income countries, is the three-year IDA replenishment negotiations. Through these negotiations with other IDA donors, the US Treasury sets policy priorities on behalf of the US government across the full array of the bank’s activities. USAID to date has played no significant role in setting the US agenda or engaging in the negotiations. USAID should engage with Treasury counterparts in advance of replenishment negotiations, send a senior-level representative to negotiations (consistent with seniority levels at Treasury and State), and ultimately convey agency priority positions via the administrator directly to the Treasury Secretary.

Embed USAID staff in the MDBs to work across priority portfolios and sectors:

Limited knowledge of, and appreciation for, the MDBs’ range of development tools at the working level constrains agency efforts to collaborate with the institution. Such arrangements are fairly common but underutilized by the US government. The Centers for Disease Control and Prevention (CDC) embedded an advisor at the World Bank to work in the health unit in the aftermath of Ebola. The French government recently embedded a civil servant from the Direction générale du Trésor to work on the World Bank’s Sahel portfolio (a high priority for President Emmanuel Macron). USAID could consider a similar arrangement focused on vaccine access and deployment, food security, or with the bank’s fragile states unit.

Align USAID budgetary resources and tools with US policy objectives at the MDBs:

USAID often plays a leading role for the US government in the establishment and resourcing of trust funds at the World Bank and other MDBs. Yet, trust fund activity suffers from limited coordination with the US Treasury, and there appears to be no interagency process for determining the appropriate allocation of US government resources to the MDBs. For example, the US pledge to the IDA replenishment is determined by the Treasury, in consultation with the Office of Management and Budget, without any recognition or awareness of parallel initiatives to support World Bank trust funds by USAID. A more integrated budgeting process for MDB contributions could better evaluate the relative value of these contributions. In many cases, US policy could be better served by higher IDA pledges, supported by USAID resources, with “soft” earmarks delivering on USAID’s policy objectives. In general, the MDB’s core financing mechanisms (IDA, IBRD, etc.) will almost always represent better value for money than stand-alone trust funds.

Given the leverage potential of the MDBs, the US might also consider more innovative options for resourcing these institutions in service of common objectives. Both the Swedish and UK governments have recently provided portfolio guarantees to MDBs, enabling them to expand their lending portfolio to countries where the banks were nearing institutional lending limits (i.e., Ukraine). USAID could consider deploying MDB guarantees for either a list of countries or a portfolio of strategic interest (e.g., health, education).

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