NCPA - National Center for Policy Analysis

Development Loans Are Money Down The Drain

September 4, 1996

The United States has decided not to contribute any new money to the International Development Association in 1997. The IDA is the unit of the World Bank that makes risky -- "soft" -- loans to the governments of poor countries for dam and road projects. These massive construction projects have been criticized for yielding little economic benefit to developing economies.

The World Bank claims that IDA-financed projects actually benefit the donor countries, through purchases from businesses. But a new study concludes that the U.S. has received little in return for the $11.9 billion it has contributed since 1960.

  • American firms receive only about 23 cents in contracts for each dollar the U.S. contributes to the IDA, say researchers.
  • The U.S. ranks at or near the bottom of the major donor countries in terms of procurement per dollar committed to the IDA, depending on the method of calculation.
  • The return on U.S. contributions to the World Bank as a whole, when contingent liability for risky loans is taken into account, is only 88 cents per dollar.
  • The U.S. has provided more than 20 percent of IDA funds over the past 35 years while receiving only 10 percent of the value of IDA procurement contracts, concludes a 1996 House Appropriations Committee report.

The developed countries will probably only give an additional $11 billion to the IDA loan fund, say researchers, compared to $18 billion when the fund was replenished in 1993. That's because other countries tie their giving to U.S. aid levels.

The Clinton administration favored contributing about $1.3 billion a year to IDA; but due to Congressional opposition, asked for no contribution for 1997 and reduced its request to $800 million for 1998 and 1999.

Source: John G. Thibodeau (Research Director, Probe International), "The World Bank's Procurement Myth," Foreign Policy Briefing No. 43, September 4, 1996, Cato Institute, 1000 Massachusetts Avenue, NW, Washington, DC 20001, (202) 842-0200.


Browse more articles on International Issues