MDBs are autonomous international financial entities that finance economic and social development projects and programs in developing countries. All members participate in oversight and the setting of operating policies of the MDBs through their participation on the boards of governors. The MDBs primarily fund these projects and programs using money borrowed from world capital markets or money provided by governments of member countries. Because of the MDBs’ favorable credit ratings, those MDBs that borrow funds from world capital markets are able to obtain more favorable loan terms than their borrowers could otherwise negotiate. Thus, MDBs enable developing countries to access foreign currency resources on more advantageous terms than would be available to them solely on the basis of their own international credit standing. MDBs are not commercial “banks” in the traditional sense of the term because they do not seek to maximize profits and they do not take customer deposits to fund their operations. The MDBs provide assistance in the form of loans, equity investments, loan and equity guarantees, and technical assistance. The primary vehicle of development assistance is direct lending. Most loans are issued with market-based interest rates; however, some MDBs offer loans at concessional (less than current market) rates to the poorest of the developing countries. MDB loans are available in various currencies to their member countries or, in some cases, to private enterprises, for development projects in a borrowing member country. In some cases, a member country guarantees loans made to private sector enterprises within the member country and, as a result, may be held liable for any defaulted loans. The United States is the largest member in most of the MDBs discussed in this report, contributing significant amounts to support the missions of the MDBs and subscribing a significant amount of the MDBs’ callable capital.The Congress appropriates funds for the United States’ contributions to the MDBs. In fiscal year 2001, the Congress appropriated about $1.0 billion for the MDBs, with the largest contribution, $775 million, going to the World Bank Group’s International Development Association. During fiscal year 2001, the Congress also authorized up to $271 million of new subscriptions to the MDBs’ callable capital. The Department of the Treasury oversees the United States’ interests in the MDBs. The United States is a member of the following MDB groups, which are included in this report: (1) the World Bank Group, (2) the African Development Bank Group, (3) the Asian Development Bank, (4) the Inter-American Development Bank, and (5) the European Bank for Reconstruction and Development. In their most recent fiscal year of operations for which information was available, the MDBs we reviewed approved about $40.1 billion of development assistance consisting of loans, loan guarantees, and equity investments for economic and social development. The Latin American and Caribbean region received the largest portion of this development assistance, approximately $15.8 billion, while the Asian and Pacific region received $11.9 billion, Europe and Central Asia received $6.3 billion, and Africa received $6.1 billion. The World Bank Group accounted for about 53 percent of the MDBs’ total development assistance provided during this period, while the regional MDBs, which focus their development activities on a particular region, provided the remaining 47 percent. Loans with market-based interest rates, equity investments, and loan guarantees accounted for about $33.5 billion of the total financial support provided by these MDBs during the most recent fiscal years of operations, while concessional lending amounted to about $6.6 billion. We received comments of a technical nature from Treasury officials, and these comments have been incorporated in the report where appropriate. African Development Bank Group African Development Bank African Development Fund Ordinary Capital Resources Asian Development Fund Ordinary Capital Fund for Special Operations European Bank for Reconstruction and Development For our report, we analyzed and compiled information from the MDBs’ annual reports and their audited financial statements for the most recent 3 fiscal years for which information was available as of January 1, 2001. We also reviewed the MDBs’ Articles of Agreement. Other data sources included the Congressional Research Service and Standard & Poor’s. The Standard & Poor’s information we used relates to the credit ratings of several MDBs as of September 2000, criteria used to assess several of the MDBs, credit ratings of various borrowing members, and credit rating definitions. This information was used with the permission of Standard & Poor’s. The most recent fiscal years of operations for which data were available from the annual reports and audited financial statements of the regional MDBs and the related entities of the World Bank Group were for the years ending December 31, 1999, and June 30, 2000, respectively. Our work focused on the MDBs and the related entities listed above; our work did not cover the other special funds operated by the MDBs. To the extent possible, we used data audited by the MDBs’ external auditors. For comparability, we converted financial data from the African Development Bank Group and the European Bank for Reconstruction and Development to the U.S. dollar equivalent. When calculating the financial information provided for the MDBs, we made the following adjustments to data items: Loans outstanding include disbursed loans and equity investments, except where noted. Net disbursed loans represent loans outstanding less the estimated loan loss allowance. Nonaccrual loans include the principal portion only. Undisbursed loans include loans that are committed but not yet disbursed. Paid-in capital excludes amounts not yet due and receivables from members related to subscribed capital. Because MDBs follow different accounting standards to prepare financial data, use different methodologies to estimate loan losses, and have different policies relating to nonaccrual loans, caution must be taken when comparing financial results. Further, MDBs serve different purposes and borrowers, which also affects the comparability of financial data. We conducted our work in Washington, D.C., from January 2001 through April 2001 in accordance with generally accepted government auditing standards. On May 11, 2001, we received comments from cognizant Treasury officials and have incorporated those views and other technical suggestions into our report, where appropriate. Multilateral Development Banks (MDB) are autonomous international financial entities that finance economic and social development projects and programs and provide technical assistance in developing countries primarily using money borrowed from world capital markets or contributed by governments of developed countries. Governments are the shareholders—referred to as members—of the MDBs. MDB members include developing countries that borrow from the MDB as well as industrialized member countries. Through their participation on the boards of governors all members, including borrowing members, contribute to the capital of the MDBs and participate in oversight and in the setting of operating policies. The ability of the MDBs to borrow funds at more favorable loan terms than the loan recipients could otherwise negotiate gives developing countries access to foreign currency resources on more advantageous terms than would be available to them solely on the basis of their own international credit standing. Several of the MDBs have created separate entities or funds to carry out specific types of development assistance, such as market-based lending or private sector investments. Table 1 shows each MDB group and its related entities. The World Bank Group draws its membership from developing and industrialized countries around the world. It includes four institutions, each providing a different function in carrying out the World Bank Group’s mission of fighting poverty and improving the standard of living in developing countries throughout the world. The International Bank for Reconstruction and Development (IBRD)—the oldest and, based on total assets, largest MDB—is the World Bank entity that provides market-based loans, guarantees, and technical assistance to middle-income member countries and more creditworthy poorer member countries. The International Development Association is the World Bank’s concessional lending arm that provides key support for the bank’s poorer members. The International Finance Corporation provides loans, equity investments, and technical assistance for private sector enterprises. The Multilateral Investment Guaranty Agency provides guarantees to foreign investors against loss caused by noncommercial risks, as well as technical assistance to host governments. The remaining four MDB groups are referred to as regional development banks because they focus their development activities on a particular region. The regional development banks’ membership consists of developing or borrowing countries within a particular region of the world plus industrialized member countries located throughout the world. Four regional MDBs—and their lending arms that provide concessional lending or equity investments—included in this report are described below. The African Development Bank Group includes the following two entities, which serve the development needs of Africa. The African Development Bank provides market-based loans, equity investments, loan guarantees, and technical assistance to the public and private sector. The African Development Fund is the concessional lending arm that provides technical assistance and key support for the bank’s poorer members. The Asian Development Bank includes the following two operational lending arms, which serve the development needs of the Asian and Pacific regions. The Asian Development Bank’s Ordinary Capital Resources provides market-based loans, equity investments, and loan guarantees, and it indirectly provides technical assistance to middle-income countries and creditworthy poorer countries. The Asian Development Fund is the concessional lending arm that provides technical assistance and key support for the bank’s poorer members. The Inter-American Development Bank group includes the following three lending arms, which serve the development needs of Latin America and the Caribbean. The Inter-American Development Bank’s Ordinary Capital provides market-based loans, guarantees, and technical assistance to the public and private sectors. The Inter-American Development Bank’s Fund for Special Operations is the concessional lending arm that provides technical assistance and key support for the bank’s poorer members. The Inter-American Investment Corporation is the Inter-American Development Bank group’s entity that provides loans, equity, and technical assistance to small and midsize private enterprises.