PHASE II The World Bank Group’s Response to the …

1 PHASE II The World Bank Group s Response to the global economic CrisisThe World Bank Group s Response to the global economic crisis : PHASE II 2012 The Independent Evaluation Group The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-458-4497 Internet: E-mail: All rights reserved 1 2 3 4 5 6 14 13 12 This volume, except for the Management Response and the Chairperson s Summary, is a product of the staff of the Independent Evaluation Group (IEG) of the World Bank Group. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. This volume does not support any general inferences beyond the scope of the evaluation, including any inferences about the World Bank Group s past, current, or pros-pective overall performance.

2 IEG does not guarantee the accuracy of the data included in this work. The boundaries, col-ors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank Group or IEG concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. IEG encourages dissemination of its work and permits this document to be copied or otherwise transmitted, with appropriate credit given to IEG as the authoring body. How to cite this report: IEG (Independent Evaluation Group). 2012. The World Bank Group s Response to the global economic crisis PHASE II. Washington, DC: Independent Evaluation Group, the World Bank Group. Cover: Jigsaw puzzle of World money. Matthias Kulka/Corbis.

3 ISBN-13: 978-1-60244-210-8 ISBN-10: 1-60244-210-X Independent Evaluation Group Strategy, Communication, and Learning E-mail: Telephone: 202-458-4497 Facsimile: 202-522-3125 i Contents ABBREVIATIONS .. VII ACKNOWLEDGMENTS .. IX XI MANAGEMENT Response .. XXVII CHAIRPERSON S SUMMARY: COMMITTEE ON DEVELOPMENT EFFECTIVENESS .. XXXIX CHAPTER 1. INTRODUCTION .. 1 Evaluation Scope .. 2 Approach, Methodology, and Evaluation Questions .. 4 Overall Response : Resource Allocation, Instruments, and Strategy .. 5 Evaluation Questions for Sector and Portfolio Reviews .. 5 Data Sources and Sample Construction .. 7 CHAPTER 2. THE BANK GROUP AND OTHER INTERNATIONAL FINANCIAL INSTITUTIONS: RESOURCE ALLOCATION AND INSTRUMENTS .. 11 Overall Findings .. 12 International Financial Institutions crisis Response : An Overview .. 14 Financial Capacity at the Time of the crisis .

4 15 IFI Mandates, Instruments, and Finances .. 17 Bank crisis Operations: Lending Vehicles and Efficiency .. 22 Patterns of Stress and Allocation of Bank Support .. 23 Measuring crisis Incidence: IEG PHASE I versus PHASE II Evaluations .. 25 GDP Decline: Measuring crisis as Output Collapse The World Bank .. 26 The Bank Relative to Other Major Donors .. 27 Multidimensionality of the crisis and Composite Stress Indicators .. 29 Multidimensionality of the crisis Individual crisis Indicators Other than GDP .. 30 Fiscal Vulnerabilities and Reserves .. 31 IBRD and IDA .. 32 IFC and MIGA .. 33 Conclusions .. 34 IBRD Instruments in the crisis and Implications for the 35 Instruments for Response : IBRD Lending Terms in the Run-Up to the crisis .. 35 Lending Instruments: Other IFIs and MDBs .. 40 The Bank s Financial Position After the crisis .

5 43 CHAPTER 3. World BANK FINANCIAL SECTOR SUPPORT TO GOVERNMENTS .. 47 Evaluation Managers Caroline Heider Director-General, Evaluation Ali Khadr Senior Manager, IEG Country, Corporate, and global Evaluation Anjali Kumar Task Manager CONTENTS ii Overall Findings .. 47 Context for Bank crisis Support to the Financial Sector .. 49 The Country Context: Nature of Financial Stress and Nature of Bank Intervention .. 51 Bank Readiness: Prior Engagement .. 55 The Content of World Bank Support: Development Policy Operations .. 57 Severely Affected Countries: Stabilizing Financial Institutions .. 57 Moderately Affected Countries: crisis Support and Medium-Term Reform .. 63 Less-Affected Countries: Precautionary Fiscal Support .. 65 Conclusion .. 70 Comparisons with Pre- crisis Financial Sector Policy Lending .. 70 The Content of World Bank Support: Lines of Credit.

6 70 Overview of Financial Sector Lines of Credit (FY09 10) .. 70 Lines of Credit and crisis Response : Relevance and Speed .. 71 Lines of Credit: Effectiveness and Longer-Term Development .. 73 CHAPTER 4. IFC AND MIGA crisis SUPPORT TO THE PRIVATE SECTOR .. 77 Overall Findings .. 77 IFC s Response .. 78 IEG s Methodology .. 79 IFC s New Platforms, Partnerships, and global Initiatives .. 80 IFC s Advisory Services .. 91 Pattern of Investments during the crisis .. 94 IFC s Investments on its Own Account in the Financial Sector .. 97 IFC s Measures to Protect its Portfolio .. 97 MIGA s crisis Response .. 99 Strategy and Intended Results .. 99 MIGA s Overall Response .. 100 The Guarantee Portfolio .. 103 Post- crisis Directions .. 104 Results: An Updated Look .. 104 World Bank Group Cooperation .. 104 CHAPTER 5. SUPPORT TO FISCAL MANAGEMENT IN THE crisis .

7 107 Overall Findings .. 108 Country Fiscal Positions in the crisis and the Response of the World Bank Group .. 109 Patterns of Bank crisis Response Financing Focused on Fiscal Management .. 109 The Content of crisis Response Operations in Fiscal Management .. 114 The Relevance of Operation Objectives and Design in Fiscal Management . 117 Support to Strengthening Fiscal Positions .. 117 Support to Countercyclical Fiscal Policies .. 120 Support to Structural Fiscal Reforms .. 125 Analytical Underpinnings of crisis Response Operations in Fiscal Management .. 127 CHAPTER 6. SUPPORT TO SOCIAL PROTECTION DURING THE global FINANCIAL crisis .. 129 Overall Findings .. 130 The Effects of the Financial crisis on the Social and economic Well-Being of Households .. 131 CONTENTS iii Channels through Which Households Were Affected.

8 131 Differences in Effects by Region .. 133 Country crisis Preparedness for Protecting Households from Shocks .. 134 Data Availability .. 134 Availability of Appropriate Social Protection Programs .. 135 Alignment of the Bank s Response to Country Needs .. 138 Allocation of Bank Support by crisis Severity .. 138 Alignment by Channels of crisis Impact: Short-Term Responses .. 142 Medium- and Long-Term Objectives: Financial crisis as an Entry Point or Opportunity for Reform .. 146 Effectiveness of Bank Support for Addressing Impacts on Households .. 148 Conclusions .. 150 CHAPTER 7. CONCLUSIONS AND THE WAY FORWARD .. 153 Overall Bank Group Response : Conclusions .. 153 Financial Sector Support to Governments: The World Bank .. 156 Support to the Private Sector: IFC and MIGA .. 157 Fiscal Support through Development Policy Operations.

9 158 Social Protection: Run-Up to the crisis and during the crisis .. 159 Overall Finding .. 161 Future Directions for More Effective crisis Response .. 161 Severely crisis -Affected Countries .. 162 Less-Affected Countries .. 162 Lending Instruments and Financial Terms .. 163 Role Relative to Partners .. 163 Financial Sector Lines of Credit .. 164 Better Private Sector Support through IFC and MIGA .. 164 A Knowledge Base and Continuous Engagement .. 165 Increasing the Effectiveness of Bank Support to Social Protection during Crises .. 165 Priorities for Action .. 166 REFERENCES .. 281 ENDNOTES .. 291 Boxes Box The World Bank Group and Other IFIs: Operations and Assets .. 16 Box ADB Evaluation of Its crisis Response .. 18 Box EBRD crisis Response Evaluation .. 20 Box IFI Cooperation on crisis Response .. 21 Box Medium-Term Sustainability: Severely Affected Financial Systems.

10 62 Box crisis Lines of Credit: Use of Additional and Repeat Financing .. 71 Box Lines of Credit in Crises: Bank Processes .. 73 Box Bank-IFC Cooperation in Financial Intermediary Lending .. 74 Box Virtuous Cycle in Asia .. 84 Box Advisory Services Program with a Bank in Armenia .. 92 CONTENTS iv Box crisis Preparedness Activities .. 93 Box World Bank Group Cooperation: A Tale of Two Countries .. 105 Box Indonesia: Monitoring crisis Impacts on Affected Groups .. 135 Box Three Levels of Country Preparedness .. 137 Box Mexico s Response to the global Financial crisis .. 141 Box Latvia s New Public Works Program .. 145 Box The Bank s Support to Existing versus New Social Protection Programs . 146 Box Consequences of Scaling Up Benefits in Times of crisis .. 150 Tables Table Bank Group Client Countries during the global crisis , Ranked by Stress Indicators.