In this post we examine Asia’s engagements with the international financial institutions-notably the World Bank (“the Bank”) and International Monetary Fund (“the Fund”). We begin with Asia’s participation in the Bretton Woods Conference and analyze the Bank and Fund’s involvement with specific countries across South and East-Asia. We argue that Asia’s dealings with international financial institutions will evolve and adapt even as new fora and institutions have emerged for intra-regional economic and geo-strategic cooperation.

India, China, and the Philippines represented South Asia and East Asia at the 1944 Bretton Woods Conference convened to discuss post-war reconstruction and financial stability. As Eric Heillener tells us, the Asian delegations made important, but unsung contributions to the creation of the International Bank for Reconstruction and Development (“the World Bank” or “the Bank”) and the International Monetary Fund (IMF or “the Fund”).

Under Japanese occupation during the Second World War, the Philippines sent a small team to the conference drawn from President Quezón’s government-in-exile. By contrast, the thirty-three-member Chinese delegation was the largest in attendance. China became a founding member of the Bank and the Fund and received a significant quota allocation. In 1949, Mao Zedong proclaimed the People’s Republic of China (the “PRC”) in Beijing. But it was only in 1980 that the PRC assumed China’s membership at the two international financial institutions.

India hadn’t attained independence when the Bretton Woods conference took place. Even so, at the U.S. Treasury’s invitation, the Government of India dispatched a formidable delegation comprising officials and businessmen. Headed by Finance Secretary Jeremy Raisman, the group did not toe the United Kingdom’s line as some expected it would. Instead, the delegation proposed giving the IMF an explicit economic development mandate. India also argued that exchange-rate flexibility was critical to furthering India’s development goals. It was, however, unsuccessful in obtaining as large a Fund quota as China. After independence in 1947, New Delhi retained India’s membership at both institutions, while Pakistan was admitted as a new member and assigned a separate Fund quota.

The Bank and the Fund’s early engagements in Asia focused overwhelmingly on India. In 1949, the Bank made its first loan for a railways project, and the country quickly became one of its largest borrowers. India gradually became a vast development laboratory for Bank-financed government programs and projects in agriculture and rural development, housing and urban planning, education and health, community-driven development, and poverty-reduction. The Fund was also influential in shaping India’s macroeconomic policies. It made its first lending commitment in 1957 but its assistance was critically important to India during subsequent balance-of-payments crises.

As the Bank and the Fund’s charters were being negotiated, Japan waged a life-and-death struggle with the United States and its allies. Therefore, it was only in 1952, that Japan became a member of the two institutions. Wasting no time, Japan began borrowing heavily from the Bank through the 1950s and early 60s. It also had two stand-by arrangements with the Fund in the 1960s. In all, the Bank financed thirty-one Japanese projects, including, most notably, the Tokaido Shinkansen (bullet train). Bank loans helped Japan rebuild its infrastructure and invest in technology. In 1966, Japan “graduated” from active borrowing status as it could rely on private financial markets. Barely two decades later, Japan became the Bank’s second-largest shareholder. Japan was also the moving force behind the Asian Development Bank (ADB). Originally to be headquartered in Tokyo, the Manila-based institution received considerable start-up assistance from the World Bank. ADB later became a collaborator and eventually a competitor to the Bank in Asia.

In 1960, the International Development Association (IDA) was established as a concessional lending affiliate of the Bank. During this time, the so-called Asian Tigers experienced unprecedented growth. Most other countries in the region, however, had significantly lower per capita Gross Domestic Product. Extreme poverty, malnourishment, and underdevelopment were widespread. In fact, in its early years, one-third of IDA’s concessional assistance went to India and Pakistan. During this time, the Bank also helped mediate the negotiations towards the landmark Indus Waters Treaty between India and Pakistan during the heyday of what its historians called “development diplomacy.”

Indonesia joined the Bretton Woods institutions in 1954. The Fund made its first stand-by commitment to that country in 1961. The Bank, however, did not make any loans to Jakarta for more than a decade. In 1965, Indonesia briefly withdrew from Bank and Fund membership, although it rejoined both institutions two years later. Following Bank president Robert McNamara’s visit in 1968, the institution’s local presence increased significantly. Over the next several decades, the Bank financed a diverse range of projects from tourism, environment, and infrastructure, to energy and education. In the late 1990s, after President Suharto’s departure from office, anti-corruption became a major focus of the Bank’s country program. This experience helped mainstream anti-corruption as an institutional and operational priority at the Bank particularly during the 2000s. In 2004, after the devastating tsunami, the Bank financed reconstruction and recovery in Indonesia, particularly in Aceh province, as part of a region-wide effort that also included projects in India, Thailand, and Sri Lanka. The lessons of this engagement helped shape the Bank’s rapid-response framework for crises and emergencies.

Like Indonesia, Vietnam was an early signatory of the IMF and the Bank’s Articles. Yet, the Vietnam War froze the Fund and the Bank’s ability to assist that country’s early economic prospects. After the conflict ended in the 1970s, McNamara defied American opposition and sought to resume the Bank’s dealings with Vietnam. In 1978, he had IDA finance the Dau Tieng Irrigation Project. However, this détente was short-lived. Vietnam’s participation in hostilities involving Cambodia in 1979 disrupted its fledging relations with the international financial institutions. The Bank finally re-engaged with Hanoi only in 1988 following the Doi Moi reforms. And in 1993, the IMF negotiated its first standby arrangement for Vietnam. Over the past few years, the Bank has focused heavily on assisting Vietnam with poverty reduction as well as with investments in education, infrastructure, and energy.

Thailand was also an early Fund and Bank member. The Bank’s early lending concentrated on roads, dams, irrigation, ports, and railways. This infrastructure jumpstarted production and commercial activity. The Fund was also active in Thailand at various times. More recently, Thailand has become a middle-income country. Yet, it retains a strong relationship with the international financial institutions focusing particularly on analytical work and policy advice.

After the PRC assumed the country’s membership, the Bank began a historic partnership in China’s economic transformation. The Bank’s early engagements focused primarily on analytical support and technical assistance. Its early lending supported China’s incremental approach to economic reforms. The Bank’s assistance and engagement strategies have evolved and adapted to the country’s changing needs driven by its impressive growth and economic transformation. The Bank’s activities now largely focus on knowledge-sharing and conceptual innovations for development with a focus on global public goods.

Bangladesh has enjoyed a close relationship with the Bank and the Fund since its independence in 1971. Under McNamara, Bangladesh quickly emerged as the second-largest recipient of IDA’s funds. The Fund also provided its first standby arrangement for Bangladesh in 1973. Over the past five decades, the Bank has financed projects that range from health services, education, infrastructure, water supply, transport, and agriculture. Many of these projects have been financed in coordination with, or co-financed together with, other donors. Multilateral and bilateral assistance, however, is not the only reason for Bangladesh’s impressive performance in poverty reduction and development. The country’s large network of civil society groups, non-governmental organizations, including micro-credit organizations, are also important actors in Bangladesh’s development story. Indeed, multilateral development banks have been able to harvest and replicate elsewhere Bangladesh’s development innovations in areas such as micro-finance drawing on the expertise and experience of these groups and organizations.

In 1997, an economic crisis ripped through several parts of Asia, revealing macroeconomic vulnerabilities in many countries. Thailand and Korea were among the worst affected. Korea, which had just graduated from regular Bank lending, sought emergency assistance from the two international financial institutions. Both the Bank and the Fund also provided emergency loans to Thailand and Indonesia to stabilize their economies.

The crisis also underlined the importance of greater regional economic cooperation and collaboration. While the Bank and the Fund’s 1997 response is well known, the ADB’s assistance is somewhat overlooked. During the crisis, ADB offered considerable technical assistance and lent heavily to Korea, Thailand, and Indonesia. The ADB also helped establish a regional economic monitoring unit and the Asian Currency Crisis Support Facility to blunt the impact of future crises. Moreover, popular resentment against the perceived harshness of Fund conditionality during the 1997 crisis contributed to the Chiang Mai initiative. This initiative is a regional currency swap arrangement among Asian countries to better manage short-term liquidity problems.

Located in Asia’s Eastern periphery, the eleven Pacific-island countries have relatively small populations. Most are vulnerable to natural disasters, while some are also affected by conflict and fragility. Besides environment and water sanitation projects, the Bank has helped build early warning systems and disaster resilience arrangements. Future multilateral assistance and policy dialogue is likely to focus on climate change, which has emerged as an existential threat to the islands.

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The role of the state in economic growth has been a constant undercurrent in policy dialogues and debates between international financial institutions and their Asian counterparts. Policy makers in many Asian countries generally believed that government interventions were critical to the efficient allocation of scarce resources and industrialization. Interventionist policies, they argued, are largely responsible for lifting stagnant economies out of low-growth traps and moving them into reasonably stable development trajectories. The Bank and the Fund were reluctant to endorse these arguments fearing distortionary effects, the potential for corruption, and unpredictable political economy dynamics.

For the most part, however, these differences do not appear to have overshadowed the international financial institutions’ program and policy engagements in Asia. Besides providing traditional project-based financing and budget support, the Bank has offered technical assistance, analytical support, and advisory services to virtually all its Asian members. These engagements have helped design and strengthen public institutions, shape development strategies, formulate policies and programs, and influence laws and regulations across the region to varying degrees. Moreover, specific global principles, norms, and standards, particularly on environmental and social issues, derived from the Bank’s operational policies have been accepted by and incorporated into national legal and regulatory frameworks in many countries.

Taken together, the shareholding and voting strength of Asian members at the Bank and the Fund is significant. Japan and China are currently the Bank and the Fund’s second and third largest shareholders, which gives them the right to appoint full-time directors. India’s influence within both institutions has also been rising.

Over the years, there have been attempts to articulate a common Southeast Asian position on reforming the international financial architecture. However, political differences, strategic divergences, and, in some cases, an ambivalence toward international coordination as a whole, have constrained Asian countries from articulating common positions on key global economic issues despite a diversity of regional and sub-regional fora for intra-Asian dialogue and coordination, ranging from the decades-old Association of Southeast Asian Nations (ASEAN) and the Asia Pacific Economic Cooperation (APEC) to more recent economic and geo-strategic groupings such as Belt Road Initiative, Asia Cooperation Dialogue, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), and the Shanghai Cooperation Organisation.

A good recent example of intra-Asian economic collaboration and policy coherence is the Asian Infrastructure Investment Bank (AIIB) in 2016. Although China took the leading role in sponsoring AIIB, other countries, such as India and Korea, have made notable contributions to the Beijing-based institution as well. AIIB, in turn, has committed to financing a number of projects in India and Bangladesh. And just as it helped ADB during its formative years, the Bank provided AIIB with considerable operational and technical assistance. AIIB also recruited former Bank staff members, particularly fiduciary and environmental experts, and adopted operational policies and procedures drawing on the Bank’s established principles and operational practice. Indeed, the Bank’s technical expertise as well as its charter-mandated political neutrality may explain why Asian countries retain strong links with both international financial institutions even as they participate in several intra-regional political and economic groupings mentioned above.

Even after the AIIB’s formation, there remains considerable unmet demand across Asia for longer-term development and concessional finance, particularly for infrastructure and global public goods. The Bank’s lending resources will, therefore, continue to be utilized for projects and programs that may be financed and implemented with governments, the private sector, or other multilateral or regional institutions and in accordance with increasingly harmonized international standards. The international financial institutions also remain vital to Asia for their counter-cyclical and crises-response functions. As recent events in Sri Lanka, Bangladesh, and Pakistan demonstrate, the IMF can play a critical role in helping countries deal with serious macro-economic and budgetary crises that have significant political ramifications.

Finally, Asian countries will continue rely on the Bank and the Fund for knowledge-sharing and specialized assistance on topics such as data privacy, regional trade integration, digital currencies, global public goods, and climate change. And in so doing, many countries are likely to fundamentally transform their relationships with international financial institutions going beyond using them only as sources of crisis and development financing.

Vikram Raghavan is a lead counsel at the World Bank’s Legal Department.

Advait Tambe recently graduated from NYU School of Law and is, at this writing, an International Finance and Development Fellow at the World Bank.

The authors’ views are personal and should not be attributed to any institution they may be professionally associated with, including the World Bank. They would like to thank David Malone, Aristeidis Panou, Nicholas Keyes, Diana Ya-Wai Chung, and Sagnik Das for their helpful review and comments.

Read more on this topic in the Asian Journal of International Law.