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Brazil as knowledge provider: The World Bank's relationship with upper middle-income countries

Dr Ingrid Aguiar Schlindwein

Joint International Relations PhD from King's College London and the University of São Paulo

26 September 2023

In my PhD research, I have investigated the relationship between the World Bank and upper-middle-income countries (UMICs), the largest recipients of funds. UMICs are not only crucial for financing the Bank’s administration but also function as examples of best practices in the World Bank's strategies for developing countries. Their projects are used as models by the Bank to be replicated in other developing countries. They provide the institution with a coping mechanism to address the loss of institutional credibility and political legitimacy post-Washington Consensus.

Brazil, a World Bank charter member, is the largest borrower in the institution's history. Despite periods of built-up tensions between the country and the institution in the first decades, Brazil has always been regarded as an ideal candidate for Bank lending for its characteristics – a major middle-income country, rich in resources, and creditworthy for the international market. Considering its position as both a provider and receiver of cooperation, the country is viewed by the World Bank as a unique source of developmental knowledge. Brazil’s concrete and applied policy, academic, scientific and institutional experience and expertise in many fields and issues have immediate relevance and application to other parts of the developing world, especially for Africa and Latin America & the Caribbean.

The Country Partnership Strategy (CPS) covering FY 2012-2015 and the Country Partnership Framework (CPF) covering FY 2018-2023 have lately shaped the relationship between the World Bank and Brazil. These two reports were produced in collaboration with Brazilian authorities and they sought to determine the main challenges that the country must face in its path towards inclusive and sustainable growth. The 2012-2015 CPS acknowledged the remarkable economic and social progress made by Brazil in the first decade of the new millennium. The report states that the country has become an essential voice in the international development debate, with the role of sharing its experiences with the world.

Following the effects of the economic and political uncertainty brought by the 2015-2016 crisis, the 2018-2023 CPF brings an expectation of improvements conditioned by the country engagement on policy reforms. The document tries to align the Bank strategy to Brazil with the elections scheduled for 2018 and its following electoral cycle. It also provides an assessment on the 2012-2015 CPS program performance. Even though it acknowledges the social progress of the previous decades, the report is more tuned with a shock response, as it leaves open conclusions that are dependent on a different growth model to be enforced.

Brazil's status as an upper middle-income country

Since the beginning of the World Bank operations, Brazil has always been classified as an upper middle-income country, differing from other major emerging economies, such as China and India. Therefore, it is eligible for IBRD loans and non-eligible for IDA loans, which are made on concessional terms for poorer countries. The country has passed the Graduation Discussion Income (GDI) for over ten years. The GDI is the level of GNI per capita of a member state above which graduation from IBRD lending starts being discussed, as high-income countries are not eligible for loans from the institution.

The World Bank justifies the need to keep lending to Brazil stating that significant second-generation challenges remain for the country, as it can be seen in the current crisis. As countries climb on the income ladder, they tend to be affected less by absolute shortages and more by asymmetries and bottlenecks in the development process. These bottlenecks have a similar effect to the well-known “poverty traps”, insofar as they drive countries to fall into a low-level equilibrium that ends up blocking or delaying growth. According to the report, those imbalances are related to the persistence of regional and income inequality.

In the FY12-13, the IBRD lending was equivalent to 0.3% of Brazilian total public expenditures, which shows that the Brazilian economy has low dependence on development aid from the institution. The small size of its program for the Brazilian economy involves a risk of the institution not being able to achieve a significant impact in the Brazilian economy. Aware of the constraints of its lending capacity to Brazil, the Bank seeks to impact the country not by the magnitude of its financial input, but by contributing with knowledge and practices, which are in accordance with its income country profile. The projects interventions, therefore, are aimed at knowledge creation, and not just knowledge transfer, in partnership with leading local researchers.

The institution has made it explicit that the central element of its relationship with Brazil is to disseminate knowledge, innovation and development experiences from this upper middle-income economy to other developing countries. The World Bank recognises that the unique Brazilian demands have required the Bank to adapt and learn. The strategy for Brazil involves knowledge-intensive lending that seeks to have a development impact in the various activities of the country.

Brazil as an active knowledge provider

In this sense, Brazil has been an active knowledge provider in the World Bank's South-South Experience Exchange Facility. This initiative connects two borrowing countries, one as provider and the other as a receiver of knowledge, for sharing experiences and best practices. In the past 10 years it has offered technical expertise in 41 projects and, cumulatively, is the country that has most shared its knowledge, followed by India, Colombia and China. In addition, the World Bank has replicated worldwide the experiences it has learned from its model partnership in the Bolsa Familia Program (BFP), launched by the Brazilian government in 2003.

The World Bank sees Brazil’s highly decentralised federal system as a fertile ground for community-driven development strategies to increase the participation of stakeholders directly involved and target on local bottlenecks. Therefore, most of its projects over the last decade have focused on lending to subnational entities, such as states and large municipalities, as a way of boosting the implementation of national policies. Reports have stressed an explicit focus on the poorer regions of the country and in areas where the Bank could have a catalytic role and strong demonstration effects. The current fiscal crisis has limited the borrowing capacity of the Brazilian states presenting a challenge to the World Bank’s strategy in the country for the years ahead.

About the author

Dr Ingrid Aguiar Schlindwein holds a Joint International Relations PhD from King's College London and the University of São Paulo. Her focus is on international political economy, international organisations and international financial institutions. In her doctoral research, she explored the role of major middle-income emerging countries in the World Bank’s strategies, with a focus on the institution’s knowledge power.

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