Austria and International Financial Institutions
International Financial Institutions (IFIs), in particular, Multilateral Development Banks (MDBs), which includes the World Bank Group, the African Development Bank Group, the Asian Development Bank, the Asian Infrastructure Investment Bank, the European Bank for Reconstruction and Development and the Inter-American Development Bank as well as the International Fund for Agricultural Development and the Global Environmental Facility, are of great importance to Austria. Thus, Austria is a shareholder of these institutions and has been a founding member in some of them. MDBs play a crucial role in attaining the Sustainable Development Goals and the Agenda 2030. Austria is also committed to these institutions because their development policy goals overlap with Austrian economic interests.
Strategic Guidelines for IFIs
The Federal Ministry of Finance’s strategic guideline for the International Financial Institutions represents Austrian interests and objectives in general and in the respective International Financial Institutions. On the one hand, it provides guidance for our Austrian representatives in the management positions of the international financial institutions and, on the other hand, serves as information for the public interested in development policies.
Austrian Representation on the Boards of Governors
Austria is represented by the Federal Minister of Finance on the boards of governors of the above-mentioned international financial institutions.
Vienna´s World Bank Office
With the financial support from Austria’s Federal Ministry of Finance, the World Bank Group has been able to expand and secure its presence in Vienna. Since 2007, several units of the institution have been operating from the Vienna location, with Eastern and South-Eastern Europe (especially the Western Balkans) and Central Asia being the focus regions of the Vienna World Bank Office’s activities.
The following notable World Bank programs have been managed out of Vienna for several years: The Facility for Investment Climate Advisory Services (FIAS), the Financial Sector Advisory Center (FinSAC), the Center for Financial Reporting Reform (CFRR) and the Danube Water Program (DWP). In 2013, the management of the World Bank’s program in Southeast Europe (Country Directorate for Southeast Europe) was decentralized to Vienna, allowing it to take full advantage of the proximity to client countries ever since. In 2017, the International Finance Corporation (IFC), the private sector arm of the World Bank Group, opened an operational branch in Vienna, which primarily manages programs in the areas of climate-relevant urban development, green infrastructure and green finance in the above-mentioned priority regions. Since autumn 2019, a small branch of the International Monetary Fund (IMF) has been established as a regional office for the Western Balkans at the same location.
The World Bank Group
The World Bank Group consists of the International Bank for Reconstruction and Development (IBRD) – which was the first institution of the Group, established together with the International Monetary Fund (IMF) in 1944 at the Bretton Woods Conference – the International Development Agency (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). The World Bank Group has set two goals for the world to achieve by 2030: To end extreme poverty by decreasing the percentage of people living on less than USD 1.90 a day to no more than 3 percent, and to promote shared prosperity by fostering the income growth of the bottom 40 percent of the population for every country. It pursues the above-mentioned goals by providing low-interest loans and grants to developing countries, providing or facilitating financing through trust fund partnerships with bilateral and multilateral donors, and supporting developing countries through policy advice, research and analysis, and technical assistance, among other things.
The International Bank for Reconstruction and Development (IBRD) – also known as the World Bank – and the International Monetary Fund (IMF) were conceived in 1944 at the Bretton Woods Monetary Conference, an international conference to regulate the international monetary and financial order along with the reconstruction needs – particularly in Europe – after the conclusion of World War II. Subsequently, both institutions were established in 1945; they are therefore also known as the “Bretton Woods Institutions”.
Initially created to help European countries rebuild after World War II, the World Bank became an organization for developing countries and – especially after the political turnaround in Eastern Europe and the former Soviet Union – for countries in transition too. The global role of the IMF was also strengthened by the collapse of the Eastern Bloc. In the course of its organizational and substantive expansion into a development organization, the original World Bank became the World Bank Group. To become a member of the Bank, a country must first be a member of the IMF.
The World Bank Group consists of five sub-organizations:
- The International Bank for Reconstruction and Development (IBRD)
- The International Development Association (IDA)
- The International Finance Corporation (IFC)
- The Multilateral Investment Guarantee Agency (MIGA)
- The International Centre for Settlement of Investment Disputes (ICSID)
While ICSID has a very special function as an independent, depoliticized dispute-settlement institution and serves as a contact point for the arbitration of international investment disputes, the other four institutions of the World Bank Group pursue the common goal of promoting the economic development of its less developed member countries. While IBRD and IDA primarily support the public sector, IFC and MIGA focus on private sector development. The main objective is to reduce poverty and the World Bank Group provides various products to this end – such as financing, insurance, equity capital, technical advice, training, analyses and knowledge. This sets the World Bank Group apart from commercial lenders who pursue other objectives and do not have a similarly broad range of instruments at their disposal.
Historically, the World Bank Group has increasingly evolved from a financing institution to a knowledge organization. Under the current President, David Malpass, this path will continue. Three priorities are guiding the cooperation to reduce extreme poverty and create wealth for the lower income groups in a sustainable manner:
- creating sustainable economic growth,
- investing in people, and
- strengthening resilience to shocks and threats that could nullify decades of development progress.
Austrian Development Bank – OeEB
In 2008, the Federal Ministry of Finance appointed the Austrian Development Bank (OeEB) as the official development bank of the Republic of Austria on the basis of a statutory mandate (Export Guarantees Act). OeEB is a specialized financial institution committed to the goals and principles of the Austrian development policy in accordance with the Development Cooperation Act (EZA-Statute). Additionally, the OeEB is a member of the Association of European Development Financial Institutions (EDFI).
As the official development bank of the Republic of Austria, OeEB aims to contribute to sustainable private sector development in developing and emerging countries within the scope of its mandate. To this end, OeEB offers financing that is not or only rarely available on the local market. It is to operate in addition to private financing institutions in developing and emerging countries. OeEB investments comply with international environmental and social standards. In addition, OeEB is to mobilize Austrian enterprises to carry out more projects in developing and transition countries in line with its “Economics and Development” strategy.
The OeEB strategy for the period 2019-2023 has a clear focus on climate financing, support for the poorest developed countries (LDCs) and Africa. OeEB plans to generate 40 percent of its new business volume in the area of climate financing, 25 percent in Least Developed Countries (LDCs) and 20 percent in Africa. Climate protection and gender equality have been defined as cross-cutting issues.
Regional development banks
The regional development banks have a similar mode of operation and governance to the World Bank that preceded them, but their respective shareholder structures reflect the majorities of their regional member countries. The primary objective of the regional development banks is also to combat poverty in the respective regions. This objective is to be achieved by promoting sustainable economic and social development, investing in infrastructure and promoting the private sector. In addition to various financing instruments, they also provide technical assistance in implementing this task.
African Development Bank Group (AfDB Group)
The African Development Bank Group (AfDB Group) comprises the African Development Bank, the African Development Fund and the Nigeria Trust Fund. All three international development financial institutions are legally independent, but are closely interlinked in terms of organization and work with the same personnel and management resources. Since 2015, Akinwumi Adesina, from Nigeria, has been serving as the 8th President of the AfDB Group.
The AfDB Group supports its regional member countries primarily through:
- Loans to promote their economic and social progress in line with sustainability criteria;
- Technical assistance and know-how for the preparation and implementation of development projects;
- Support and provision of know-how for the preparation, implementation and coordination of development plans, in public (financial) management and in the implementation of structural reforms.
The AfDB was founded in 1963 by the OAU (Organisation of African Unity, the predecessor institution of today’s African Union) as a Pan-African institution for the financing of development projects in Africa. It operates on the basis of capital provided by the member countries and refinances itself from the international financial markets. The bank grants loans to those creditworthy members who would only be able to access the financial markets on significantly worse terms on their own. In 1982, the AfDB opened up to non-regional shareholders, which significantly improved the quantity and quality of its capital and thus its creditworthiness on the international financial markets. In particular, many European industrialized countries, including Austria, as well as Canada and the USA, were subsequently admitted as non-regional member states, followed by Japan, China, South Korea, India, Brazil, Argentina, Saudi Arabia, Kuwait and Switzerland. Today AfDB comprises 54 African and 27 non-African member countries. Austria has been a member of the bank since 1983 and currently holds a capital share of 0.436 percent.
In 1972 a financial institution for the poorest and non-creditworthy countries, the African Development Fund (AfDF) was founded. It operates with highly concessional funds and is regularly supplied with grants, mainly from industrialized countries. In addition to loans at favorable conditions, grants are also awarded to African low-income countries. Austria has been a member since 1981. In 2019 the 15th replenishment of the AfDF was completed. Subject to parliamentary approval, Austria is therefore expected to hold a share of 1.99 per cent in the AfDF.
In 1976 the Nigeria Trust Fund (NTF) – the smallest member of the AfDB Group – was established. The NTF is a revolving fund and is filled only by Nigeria (initial capitalization of USD 80 million, replenishment in 1981 with USD 71 million). It is subject to a Nigerian decision-making structure.
The AfDB Group has five major strategically synergetic development priorities (so-called “High Fives”):
- Improving the quality of life of the people (human and social development);
- Food security (agriculture, rural development, water);
- Energy (electricity supply, renewable energy, green growth);
- Industrialization (private sector development, infrastructure, development of manufacturing industries);
- Regional integration.
Climate change and its effects, fragility and gender equality are also priorities, but are pursued in a mainstreaming approach.
In its specific cooperation with the AfDB Group, Austria has defined water and renewable energy as its two top priorities. In both sectors there is cooperation with the Austrian Development Agency (ADA) and contributions to special trust funds are financed.
Asian Development Bank (AsDB)
The Asian Development Bank (AsDB) was established in 1966. The ADB has 68 shareholding members (49 regional, 19 non-regional member countries). The membership is divided into non-borrowing and borrowing shareholders. Its headquarters are located in Manila, Philippines. Austria joined the bank as a founding member in 1966 and holds a 0.34 percent stake in the bank’s capital. Together with Germany, Great Britain, Turkey and Luxembourg, it forms one of a total of 12 voting groups. The largest shareholder is Japan, which holds the most voting rights at 12.8 percent. Japan is closely followed by the USA, with 12.7 percent. Since January 2020, Masatsugu Asakawa, from Japan, has been serving as the 10th President of the AsDB.
AsDB’s objective is to support an economically prosperous but at the same time integrative and sustainable Asia. Based on its founding mandate, it continues its efforts to eliminate the extreme poverty that still exists in Asia. The Asian Development Bank supports its members and partners with loans, technical assistance, non-repayable grants and capital investments in order to promote social and economic development. In 2018, AsDB approved a new long-term strategy, Strategy 2030, which defines the institution’s overall vision and strategic responses to the evolving needs of Asia and the Pacific.
AsDB’s support focuses on seven operational priorities:
- Fighting poverty and reducing inequalities;
- Accelerating progress on gender equality;
- Fighting climate change, strengthening resilience to climate change and disasters and improving environmental sustainability;
- Improving urban development;
- Promoting rural development and food security;
- Strengthening good governance and institutional capacities;
- Promoting regional cooperation and integration.
With the Asian Development Fund (AsDF), the AsDB also has a separate fund that provides non-repayable grants to its poorest member countries. The AsDF resources come mainly from contributions of the AsDB member states, which are mobilized through regular replenishments. With its contributions, Austria not only provides assistance in the development of the Asian region, but also benefits from the awarding of contracts to the Austrian economy in the realization of bank projects. The membership of the Bank thus also acts as a door opener for the Austrian economy in Asia. Austria’s cooperation with the Asian Development Bank focuses in particular on climate protection, urban development and railways.
Asian Infrastructure Investment Bank (AIIB)
The Asian Infrastructure Investment Bank (AIIB) was established in 2015 and is based in Beijing, China. The bank has 102 approved member countries, including 52 non-regional states. China holds the largest share of capital, followed by India, Russia and Germany. Austria is a founding member and holds 0.52 percent of the bank’s capital. Jin Liqun, from China, has been the first President of the Bank since 2016.
AIIB aims to promote sustainable economic development by financing infrastructure and other productive sectors in Asia, and to strengthen regional cooperation to overcome development barriers. AIIB may also make up to 15 percent of its investment volumes in member countries outside Asia, as long as the projects benefit Asia’s economic development. Out of the non-Asian countries, India has been the recipient which has received the highest number of investments to date.
Unlike in most other IFIs, AIIB’s Board of Directors is not based at the Bank in Beijing, but meets four times a year in person and, if necessary, in virtual meetings. Austria is part of the Euro-Area Constituency, which also includes Belgium, Cyprus, Finland, France, Germany, Greece, the Netherlands, Ireland, Italy, Luxembourg, Malta, Portugal and Spain. For Austria, to participate in the AIIB is in continuity with its long-standing successful involvement in various international development and financial institutions.
AIIB is committed to the goal of applying high environmental, social and governance standards and following modern and fair procurement rules. To this end, operational regulations, especially environmental and social standards and standards in procurement, have been developed, also with the involvement of civil society, which largely correspond to those of other IFIs and in some cases even exceed them. For example, the AIIB has “universal procurement”, which means that companies from non-member countries can also bid for contracts.
European Bank for Reconstruction and Development (EBRD)
The European Bank for Reconstruction and Development (EBRD) was established in 1991, in direct response to the changes in Central and Eastern Europe and to support the transition to free market economies in the former centralized planned economies of Eastern Europe and the Soviet Union. The EBRD is committed to furthering progress towards market-oriented economies and the promotion of private and entrepreneurial initiatives. Uniquely for a development bank, the EBRD has a political as well as an economic mandate, which means that it assists only those countries committed to and applying the principles of multi-party democracy and pluralism.
The Bank is committed to helping the transition countries to implement structural and sectoral economic reforms, including de-monopolization, decentralization and privatization. Its tasks include the promotion of private sector activities, the strengthening of financial institutions, legal systems and the development of the infrastructure necessary to support the private sector (including transport, energy and water/wastewater). The EBRD operates in both, private and public sectors, with the Bank now providing over 73 percent of its financing to the private sector.
The EBRD has 71 members (69 countries plus the European Commission and the European Investment Bank). Of these, 36 are recipient countries in Eastern Europe and the former Soviet Union and four countries in the Southern and Eastern Mediterranean. Cyprus and Greece are temporary recipient countries (until 2020). Austria is a founding member of the Bank.
The supreme decision-making body is the Board of Governors, to which each member country nominates one governor and one deputy governor. The Austrian Governor is the Federal Minister of Finance. In addition to the Board of Governors, there is the Board of Executive Directors which consists of 23 members elected by the Board of Governors for a term of three years. The members of the Board of Directors represent so-called voting groups that are composed of two or more member states. The Board of Executive Directors is responsible in particular for formulating business policy strategies.
The President of the Bank is elected by the Board of Governors for a four-year term and is responsible to the Board of Executive Directors for the conduct of the Bank’s day-to-day business. Jürgen Rigterink became the EBRD’s Acting President in July 2020, when the Bank’s sixth President, Sir Suma Chakrabarti, ended his second term. He will remain Acting President until a successor to Chakrabarti is elected by the Board of Governors and can take up the position. The election is scheduled to take place during the EBRD Annual Meeting in October 2020.
Inter-American Development Bank (IDB)
The Inter-American Development Bank (IDB), is the oldest and largest regional multilateral development bank, founded primarily for the economic and social promotion of Latin American and the Caribbean states. The IDB is formed by the following organizations:
- The Inter-American Development Bank (IDB)
- The Inter-American Investment Corporation (IIC)
- The Multilateral Investment Fund (MIF)
IDB was founded in 1959, since then it has become one of the biggest catalysts in the mobilization of resources for the region. The Bank’s financial resources consist of paid-up capital, reserves and borrowings made on the financial and capital markets, as well as other contributions from member countries (e.g. trust funds). The so-called Fund for Special Operations (FSO), formerly an independent institution, was merged with the IDB’s share capital in 2016. For this reason, the IDB can grant loans at conditions close to the ones obtained in the market as well as highly concessional conditions or a mixture of both (blended finance). The capital to be paid in is in form of cash payments – spread over several years – and represents only 4.3 percent of the capital subscription. Accordingly, the majority of the subscribed capital is guarantee capital, which is used to secure the capital raised by IDB in the capital markets.
The basic tasks of the IDB are to use its own capital, to take out loans on financial markets, to open up other available resources to finance the development of its recipient member countries and, furthermore, if private capital is not sufficiently available, to supplement private investment on favorable terms and with a favorable maturity. It also provides funds for technical assistance to prepare, finance and implement development projects. The Bank’s operations cover the whole spectrum of economic and social development, with an emphasis on programs for the lowest income groups.
Only after an amendment to the statutes in 1970s, countries outside America were able to join the IDB. Currently, the IDB has 48 members. In addition to Latin American and Caribbean recipient member countries, the donor side includes the USA, Canada, Japan and Israel, as well as some European states (including Austria, since 1977) as shareholders.The Inter-American Investment Corporation (IIC) supports small and medium-sized private enterprises in Latin America. It was founded in 1986 and thus complements the IDB’s activities, which are mainly aimed at the public sector.At the present, the IIC has about 45 member countries with a majority consisting of Latin American and Caribbean countries. On the donor side, besides the USA as the strongest regional member country, Austria has also been a shareholder since its foundation in 1986. The granting of loans and participations by the IICs takes place without government guarantees. Financial services, venture capital, industrial production, agriculture, fishing, tourism, mining and oil are important priority sectors of the Bank.
The Multilateral Investment Fund (MIF) belongs to the Inter-American Development Bank and was founded in 1993. Austria is not a member of the MIF. MIF makes small targeted investments with subsidies and investments and acts as a catalyst for larger reforms by testing new economic approaches. MIF has become the largest financial promoter of technical assistance for private sector development.