1. Higher Authority or Hired Hand? The World Bank?s Policy-Based Lending to Indian and Brazilian State Governments.
- Author
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Kirk, Jason
- Subjects
- *
INTERNATIONAL economic assistance , *FEDERAL government ,DEVELOPING countries - Abstract
Federal democracies in the developing world?despite important differences in executive-legislative organization, party systems, and other institutions?may experience similar challenges to centrally-initiated programs of structural economic reform. Regional governments, facing electorates of their own, can reap political benefits from pursuing profligate fiscal policies, while shifting the economic costs of persistent deficit spending to the country as a whole. Central leaders, dependent on regional party-mates and coalition partners for political support, may lack the ability to impose the sub-national reforms needed to consolidate macroeconomic liberalization.In recent years, central leaders in several federal developing countries have consented to allow the World Bank to engage directly with regional governments?effectively thrusting external conditionality downward in hopes that the Bank would impose harder constraints on regional budgets. This paper investigates policy-based lending by the World Bank to sub-national state governments in India and Brazil, the first countries where it implemented such an approach beginning in the mid-1990s. Utilizing data from official interviews and primary document analysis, the paper shows that central authorities in both countries envisioned Bank conditionality as a ?two-level game? strategy for triggering reforms in the states: that is, the Bank?s conditions represented courses of action that the central authorities wanted the states to take anyway, but could not enforce on their own. While the paper argues that the two countries? reasons for authorizing sub-national adjustment lending are essentially analogous, it also shows that there have been important differences in implementation of the approach, which follow both from institutional variations in Indian and Brazilian federalism and from specific tactical decisions by the Bank in both cases. In the Brazilian case, the Bank?s state loans were soon rendered marginal and redundant by broader state debt negotiations and the passage of fiscal responsibility laws, and have receded to a small share of the Bank?s overall lending to the country. In India, state-lending became more fully articulated through two successive coalition governments at the center, and may be helping to catalyze a nascent shift to a more performance-based federal resource allocation regime. Ultimately, the analysis shows that while international institutions can shape sub-national economic governance in significant ways, in at least two of the most important countries in the developing world, such influence is still mediated through institutions of the national state. ..PAT.-Conference Proceeding [ABSTRACT FROM AUTHOR]
- Published
- 2006