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ida
international development
association
UFRGSMUN | UFRGS Model United Nations
ISSN 2318-3195 | v. 7 2019 | p. 374-421
CRISIS RESPONSE WINDOW: FUNDS ALLO-
CATION FOR ECONOMICALLY DISRUPTIVE
CRISES
Anna Angélica Nogueira Amaral1
Artur Holzschuh Frantz2
Beatriz Vieira Rauber3
Lorenso Andreoli da Silva4
Mariane Di Domenico5
ABSTRACT
Created in 2011, the Crisis Response Window (CRW) of the International Develop-
ment Association (IDA) is a part of a broader system of development promotion.
Under the contemporary scenario of ever-increasing challenges to overcoming
underdevelopment, rapid response mechanisms gain importance in the world sta-
ge. The present Study Guide seeks to address the theoretical and practical debates
underlying previous and current actions of the CRW, assessing its role as a deve-
lopment finance institution. Furthermore, the conditions for IDA action, as well
as for the CRW to be utilized, are described, followed by short case studies of said
situations. Additionally, the historical background and the statement of the issue
are followed by the presentation of the previous international actions taken in this
regard. IDA, therefore, should debate both the technical aspects of the criteria for
CRW funds allocation and the practical dynamics of approving projects and setting
strategies.
1 Anna Angélica is a fifth-year student of International Relations at UnB.
2 Artur is a third-year student of International Relations at UFRGS and Director at IDA.
3 Beatriz is a fourth-year student of International Relations at UFRGS and Director at IDA.
4 Lorenso is a fifth-year student of International Relations at UFRGS and Director at IDA.
5 Mariane is a second-year student of International Relations at UFRGS and Assistant-Director at IDA.
375INTERNATIONAL DEVELOPMENT ASSOCIATION
1 INTRODUCTION
Throughout the 20th century, economic and social development
have been among the main concerns of governments and international ins-
titutions. The international community witnessed, during the first half of
that century, the severe consequences of economic crises and generalized
war for their populations. The Great Depression of 1929 put a large number
of countries in economic recession and their populations in severe diffi-
culties to ensure their subsistence. Right after the world had overcome the
aforementioned crisis, World War II destroyed mainly the European conti-
nent, putting the states of the region in economic and social scourge once
more (Hobsbawm 1995).
The creation of the World Bank Group (WBG) occurred in this his-
torical context. Established in 1944 at the Bretton Woods conference, the
World Bank was founded with the purpose of financing and delivering eco-
nomic aid for those countries destroyed by the Second World War which, in
this case, were European economies. The Bank was successful at this task,
since the countries in Europe demonstrated industrial and economic grow-
th at the beginning of the 1950s. Having achieved the primary mission of
the Bank, the administration changed its focus from reconstruction to de-
velopment and poverty mitigation in the next decades (Carvalho 2004).
It was due to this change of purpose that the International Develo-
pment Association (IDA) was created. Founded in 1959, IDA has the objecti-
ve of reducing poverty and inequality in countries with low Gross Domestic
Product per capita by granting long-term loans to finance infrastructure,
social security systems, and aid to their financial health, especially con-
sidering their external debt solvency. Since its creation, IDA grew in the
number of member-countries, budget, and scope, as it started to grant
emergency loans for nations severely impaired by a crisis in the new mil-
lennium (IDA 2019). Having acquired considerable knowledge in fighting
crisis, supported by the international community, IDA decided to propo-
se the creation of the Crisis Response Window (CRW) in 2009. The CRW is
a mechanism through which IDA can disburse amounts of capital, in the
form of loans and grants, to provide quick financial aid for developing cou-
ntries struck by exogenous shocks that lead to crises (IDA 2018a).
Therefore, the present study guide has the objective of analyzing
the CRW of IDA. In order to do so, this paper will be divided into four main
parts. The first one will present the history of the World Bank Group, IDA
and the CRW in order to understand the historical factors that led to the
creation of the World Bank and other institutions and mechanisms. Mo-
reover, it is important to understand the purposes for the creation of these
organizations, since they are directly related to each of the objects of histo-
rical analysis. The importance of IDA’s financial assistance for development
and the combat of inequality in developing countries will also be addres-
376CRISIS RESPONSE WINDOW: FUNDS ALLOCATION FOR ECONOMICALLY DISRUPTIVE CRISES
sed, followed by the description of the creation of the CRW.
In the second part, the functioning of the CRW will be approached,
discussing the requisites that countries struck by crises must fulfill to ac-
cess CRW funds. The types of crises that could trigger IDA’s aid, how the
CRW is financed and the challenges that the Board of IDA encounters to
determine if a country qualifies for this aid will also be considered in this
part. At last, the three types of crises considered by the CRW will be expo-
sed. The difficulties and singularities of each type will be discussed, as well
as the particularities that lenders of financial aid have to consider in order
to mitigate the losses each crisis provokes.
In the third section of this paper, previous actions carried out by
the CRW will be exposed. In this section, examples of the crises mentioned
above, and the Board’s strategies to aid those countries will be discussed. In
the final section, the position of each member of the Board regarding the
CRW mechanism and its possible allowances will be clarified.
2 HISTORICAL BACKGROUND
The World Bank (WB) was created in 1944 during the Bretton Woods
Conference. It is one of the major institutions for aid and development in
existence, having poverty reduction and economic growth as its primary
mission. It consists of five institutions, those being the International Bank
for Reconstruction and Development (IBRD), the International Develop-
ment Agency (IDA), the International Financial Corporation (IFC), the Mul-
tilateral Investment Guarantee Agency (MIGA) and the International Cen-
tre for Settlement of Investment Disputes (ICSID) (WBG 2019c).
The IBRD is responsible for lending to middle-income and creditwor-
thy low-income nations, while IDA provides credits6 and grants to the poo-
rest countries’ governments. Together, these two institutions are generally
referred by the term World Bank (WB) (WBG 2019c).
2.1 CREATION OF THE WORLD BANK
The 20th century represented a great turn in international relations
in many different forms, disassembling its common manners and calling
for a new architecture of the world order. In the aftermath of the Great
Depression and World War II, forty-four nations intending to build new
pillars for the international economic order gathered in the United Nations
Monetary and Financial Conference between July 1st and 22nd of 1944, la-
ter known as the Bretton Woods Conference (Dreher, Sturm, and Vreeland
2007).
6 IDA’s credits consist of interest-free loans (Baldwin 1961).
377INTERNATIONAL DEVELOPMENT ASSOCIATION
The Bretton Woods Conference focused on ruling a new monetary
and financial system understanding the need to overcome the limitations
of the gold standard and competitive exchange devaluation policies (Car-
valho 2004). Two main proposals guided the conference, one raised by the
English economist Sir John Maynard Keynes and the other by the Ameri-
can Harry Dexter White. In spite of their diametrically opposite positions,
they agreed on the concern regarding the reemergence of a new period of
recession, similar to the 1929 crisis and consented on the essentiality of
economic cooperation based on full employment and economic stability to
promote prosperity and peace among the nations. It resulted in the esta-
blishment of three institutions that were essential to reshape the post-war
world: the International Monetary Fund (IMF), the General Agreement on
Trade and Tariffs (GATT) and the World Bank (WB) (Pereira 2009).
Through understating the maintenance of the monetary system and
trade policy as two of the national governments’ fundamental responsibili-
ties, the monetary disorder taught the value of cooperation. The interwar
detrimental experience with restrictive and discriminatory policies made
clear the urgency for a multilateral organization to prevent national go-
vernments from returning to the allegedly harmful protectionist policies.
Those cluster ideas facilitated an international comprehension that led to
the creation of the IMF and the concept of an International Trade Orga-
nization (ITO) that could only take place after the end of the war, broadly
discussed in Bretton Woods (Gavin and Rodrik 1995).
However, this paper should focus on the other institution created in
Bretton Woods, the World Bank, initially known as the International Bank
for Reconstruction (IBR). In a time when capital had already been channe-
led bilaterally by private capital market, loans and grants, the WB concept
was based on a multilateral mechanism responsible for directing capital
from plentiful nations to areas in need of economic development, blurring
the obvious economic and political advantages of the bilateral agreements
(Gavin and Rodrik 1995).
The WB was created to assist rebuilding European nations that were
devastated by the War, reason why it was originally called the Internatio-
nal Bank for Reconstruction. The development component of the Interna-
tional Bank for Reconstruction and Development (IBRD) was incorporated
years after, with the return of growth in Europe and when other actors
began to take upon themselves the role of supporting nations’ reconstruc-
tion, the WB policies suffered a reorientation, shifting its focus to develo-
ping countries, especially to its members in Latin America, Africa, and Asia
during the 1950s and 1960s (WBG 2019a).
A new scope of the World Bank Group (WBG)7 works began in the
7 In the present study guide, the term “World Bank Group” refers to the institutions’ five agencies –
IBRD, IDA, IFC, ICSID, and MIGA –, whereas “World Bank” refers only to the first two agencies. Throu-
ghout the 1950s and 1960s, when IFC and IDA were created, respectively, the World Bank became the
World Bank Group to better represent its new and broad institutional framework (WBG 2019a).
378CRISIS RESPONSE WINDOW: FUNDS ALLOCATION FOR ECONOMICALLY DISRUPTIVE CRISES
1970s with its growing attention to poverty eradication. It was characteri-
zed by the exponential increase of loans and the rise of sectoral and struc-
tural adjustment programs, aiming the reform of developing countries’ ins-
titutions in the context of economic liberalization. The mandate of Robert
McNamara as the WBG President, from 1968 to 1981, was fundamental for
the WB’s reorientation since his conception of international security was
closely related to poverty and social injustice (Pereira 2009). As a result, the
WBG actions shifted from “reconstruction” to “development”. Neverthe-
less, the Bank’s new model was very criticized since the reduction of the
public sector role in the face of privatization policies had resulted in incre-
ased unemployment rates and decreased health and education qualities.
Since the early years of the WBG, development was claimed to be one
of the key goals of the organization, always following the Bank’s neoclassi-
cal approach (Medani 1986). It is relevant to understand the main theoreti-
cal perspectives concerning development, in order to grasp the reasoning
behind actions taken by IDA and the criticism it receives.
As with most aspects of economic sciences, theories on develop-
ment can be generally classified into two broad groups: orthodox and he-
terodox (Cruz e Silva and Gonçalves 2015). The first one is based on tra-
ditional neoclassical principles and is more usually represented by the
Theory of Modernization. This approach suggests that societies must go
through an almost evolutionary process with several determined phases,
which vary from author to author, in order to achieve the status of “mo-
dern society” – characterized by westernized political structures and an
open-market economy. The second one is a general term to designate the-
ories that oppose the neoclassical mainstream. One of the most relevant
heterodox approaches is the Theory of Dependency, which defends that
governments should participate more actively in the economy to achieve
development, be it by controlling exchange rates, promoting national ca-
pitals or by protecting the internal industry and providing public funding
to less competitive sectors (Reyes 2001). The World Bank Group generally
adheres to the modernization theory, setting the guidelines to be followed
by impoverished nations to achieve development in accordance with the
liberal international economic order (Medani 1986).
This theoretical description above is intended to inform the sub-
sequent effort to understand contemporary development dynamics and
the role of the World Bank in the process. Throughout the 20th and early
21st centuries, its theoretical paradigm became more pragmatic. In some
instances, such as negotiation of foreign debts and implementation of aus-
tere fiscal policies, the World Bank, alongside the International Monetary
Fund (IMF), kept faithful to its orthodox neoclassical origins (Rapley 2007).
However, in critical situations, such as environmental crises or deep econo-
mic recessions, the institution embraces heterodox ideas, most notably by
379INTERNATIONAL DEVELOPMENT ASSOCIATION
encouraging public spending to promote countercyclical measures8. The
duality of this approach is relevant in order to keep continuous contact
between development finance institutions and low-income countries, so
that crisis response may be faster and more appropriate (Velde 2011).
Nowadays, the WBG is the primary international institution respon-
sible for promoting economic development in the world by sponsoring
projects of multiple scopes in emerging market countries as well as the
world’s most impoverished economies (Dreher, Sturm, and Vreeland 2007).
With the participation of 189 member states, the WBG has over 10.000 em-
ployees (WBG 2019b) and has disbursed for the year of 2018 resources that
reached the amount of USD 46 billion (WBG 2018a). Thus, new themes were
added to the Bank’s agenda, such as conflict prevention, post-conflict re-
construction, corruption, social development and development guided by
the community.
2.2 INTERNATIONAL DEVELOPMENT AGENCY (IDA) ONSET
In the early 1950s, the rising success of the WB’s initial goal in Europe
and the advent of its new vision aiming to help developing countries led
to the understanding that, in order to reach the more economically vul-
nerable countries, it was necessary to soften the Bank’s loan terms so that
these nations would be able to afford to borrow the financial assets needed
for their growth (IDA 2019). Bearing that in mind, the International Deve-
lopment Association (IDA) was created in 1959 as a subsidiary of the IBRD
seeking to reduce poverty and inequalities in the global living conditions
by providing countries with lower Gross Domestic Product (GDP) per capita
with interest-free9 and long-term loans, with a grace period of 10 years and
payment period of 35 to 40 years (Lavelle 2011). Such credits were to be
used for investing in infrastructure, in human capital, and in sectors that
need rapid and efficient reforms for sustainable growth. Additionally, the
institution also provides debt relief for Heavily Indebted Poor Countries
(HIPC), to help them ensure their debt sustainability (IDA 2019). Essentially,
IDA was designed to enable WB poorest client countries to repay their lo-
ans aiming at their development.
Initially, the Articles of Agreement for IDA had 15 signatories, and,
8 Countercyclical measures, also known as countercyclical policies, refer to instances in which gover-
nments combine fiscal and monetary policies to soften the effects of the cycles of growth and crises in
capitalist economies so as to promote more stable and sustained development. This a common concept
in most macroeconomic theories, but the specific means to achieve such goals may vary from one the-
orist to others (Taylor 2000).
9 An interest-free loan, also known as a soft loan or concessional terms, is a term used to describe
capital lending operations that bypass the normal process by providing loans with lenient terms of
repayment. It is based on either a no or a low-interest charge, maybe enabling the payment in incon-
vertible local currency – meaning that the creditor can agree not to convert it for a determined period
of time (Baldwin 1961).
380CRISIS RESPONSE WINDOW: FUNDS ALLOCATION FOR ECONOMICALLY DISRUPTIVE CRISES
within eight months of its creation, IDA already counted with 51 members
and had allocated credits worth over USD 100 million to four countries10.
Nowadays, IDA has grown in significance and is composed of 173 nations,
whose representatives meet twice a week in regular sessions and every
three years to analyze and replace the funds of the Association. Currently,
the objectives of the institution comprise reducing disparities between
countries, focusing on primary education, basic health, access to water and
sanitary treatment, and a better insertion of the population into the natio-
nal economy, increasing productivity (IDA 2019).
As explained prior to this section, IDA and the IBRD form together the
WBG development lending arm, which made it possible for them to operate
as a single entity. For a country to be a member of IDA, it must be a member
of IBRD. They also share the same president and the IBRD Board of Gover-
nors and Board of Executive Directors are officially valid for IDA as well,
if these countries are also members of IDA. There are 24 Executive Direc-
tors, 5 of them being appointees from each of the five largest shareholders,
while the other 19 are elected by the remaining Governors, clustered in 19
groups according to their cultural and ethnic characteristics, each group
electing its representative (Engel 2012). Usually, the Board’s decisions are
consensual, but the WB uses a voting system based on quotas, determined
by the countries’ amount of shares in the institution or their level of subs-
cription. The appointees are able to cast the number of votes held by the
member that nominated them, while the elected representatives cast the
number of votes that they received in the election (Engel 2012).
Distinctly from the IBRD, IDA does not raise its financial capital on
international capital markets. It requires periodic contributions from we-
althier developed countries in regular replenishment11 rounds. It also re-
ceives profits from the IBRD itself. The cited rounds are important because
they include debates on the allocation criteria to be used by the WB len-
ding procedures during the next three years (Lavelle 2011).
Since its creation, IDA has totaled USD 369 billion in credits and
grants, with approximately USD 20 billion over the last three years, and has
become the leading source of interest-free loans to 75 HIPCs. It is impor-
tant to note that some countries fit both IDA and IBRD terms, since their
low income is combined with a high capacity of payment. A country is tem-
porarily part of IDA, meaning that once they have the necessary resources
to invest in basic sectors of the society and develop themselves, they leave
the IDA category. Nevertheless, they keep providing funds for those remai-
ning countries to develop. Through its history, 44 states have “graduated”,
10 The initial four recipient countries of IDA were Chile, Honduras, India, and Sudan (IDA 2019).
11 Every three years, the members of IDA gather to establish – through donations – the budget of the
organization for the next three years. The meeting also serves to review the members of the association
and formulate new IDA policies. These periods of three years are called replenishment periods and are
identified by their number. For example, the 16th replenishment period – when the permanent CRW
was established – is called IDA16 (IDA 2018e).
381INTERNATIONAL DEVELOPMENT ASSOCIATION
meaning that they have overcome the conditions required by IDA’s loaning
criteria, while others have re-entered it (IDA 2019).
2.3 IDA AND DEVELOPMENT
As previously presented, IDA is the organ within the World Bank
Group responsible for the promotion of development in every low-income
and some medium-income countries12. IDA was strengthened in the past
few decades in response to the criticism directed at the Bank for its genera-
lized position regarding development — focusing on liberalization and the
opening of small and weak internal markets (Hopkins 1986). The creation
of the IDA’s Regional Window in 2003, therefore, marked a shift in the ins-
titution’s policy, now aiming at country-specific strategies in the pursuit of
development. Thus, the organization started giving more emphasis to the
particular challenges faced by each country or region in the financing of
projects. The new approach seeks to encourage regional integration both
through policy coordination in the formation of institutions and the crea-
tion of regionally integrated infrastructure. This indicates IDA has taken a
more diversified stance on the means whereby development may be achie-
ved, signaling a tendency towards more case-oriented approaches (WBG
2019d).
At the end of the 20th century, some scholars questioned the ef-
fectivity of the World Bank in fulfilling its role in aiding weak economies
at that point in time. It was said that, since the creation of the institution,
the internal situation of countries had improved to a level in which they
had to rely less on foreign capital and international aid. However, even tho-
se scholars recognized the necessity for more funds to be directed to IDA,
in order to better reach the countries that needed them most (Culpeper,
Berry, and Stewart 1997). This comes to support IDA’s relevance growth in
the 21st century, helping respond to new challenges faced globally (WBG
2019d).
IDA, thus, has intensified its actions in several areas in order to
keep the Bank’s presence relevant in developing countries. The Associa-
tion, apart from having its specific windows, also takes direct action in hel-
ping manage economies and fund projects. Analytical studies and reports
are produced to, alongside groups of advisors promoted by IDA, help gover-
nments to better employ the newly acquired resources. The funds are lent
according to a series of criteria, including national income per capita, risk
of debt insolvency, and IBRD creditworthiness. Depending on the specific
situation of each nation, IDA may decide on the proportion of funds to be
disbursed as grants or as regular and blend credits with very long maturity
12 ome medium-income countries are funded only by IBRD within World Bank, while others are also
eligible to IDA funds, especially during crises.
382CRISIS RESPONSE WINDOW: FUNDS ALLOCATION FOR ECONOMICALLY DISRUPTIVE CRISES
periods (IDA 2018c). Technical issues and a more in-depth debate on the
matter are presented below.
2.4 CREATION OF THE CRISIS RESPONSE WINDOW (CRW)
Towards the end of the 21st century’s first decade, several emerging
economic dynamics challenged the traditional financing mechanisms wi-
thin the framework of the World Bank. These new situations spurred the
creation of new institutionalized manners by which developing countries
could receive financial support from IDA (IDA 2010c). Therefore, the pre-
sent section seeks to address the historical conditions that required inno-
vation within the World Bank Group, as well as the solutions found.
Between 2007 and 2009, a combination of factors such as the finan-
cialization of capitals, the commodity boom, and the housing bubble in the
United States, which was then the most important market in the world, set
the stage for a large-scale crisis. The impact of the crash of the financial
market in the so-called real economy, represented by growing unemploy-
ment and shrinking production and consumption, quickly spread across
borders, generating one of the biggest international crises in history (Fos-
ter 2008). The American economic tragedy reached the rest of the world
in several ways, most notably, according to some scholars, affecting de-
veloping and impoverished nations (Griffith-Jones and Ocampo 2009).
However, it is also essential to point out that this crisis had the distinctive
characteristic of heavily impacting the most advanced economies in the
world, setting the stage for the emergence of countries such as Brazil, Rus-
sia, China, India, and South Africa (BRICS), among others. These countries
managed to recover faster from the initial shock and take advantage of the
unstable environment to take a greater role in the international economy,
most notably within multilateral forums (Ramos et al. 2012). Arguably, the
most important transmission channel through which the crisis hit other
areas of the world was the decrease in commodity prices, affecting more
directly the poorest countries, which tend to rely on exporting a small va-
riety of primary goods (Griffith-Jones and Ocampo 2009).
Besides exogenous economic shocks, another contemporary challen-
ge that affects poor and developing countries more heavily than their we-
althy peers is climate change. The processes of industrialization and urba-
nization that took place over the past decades and centuries have increased
the amount of greenhouse gases in the atmosphere. Most of these gases
are produced by developed or emerging nations, which account for over
75% of said gas releases (Union of Concerned Scientists 2018). However, the
steady rise of Earth’s surface temperature, caused by industrial, livestock
and other human-induced forms of greenhouse gas emissions, have a dis-
proportionate effect over the poorest countries (Mendelsohn, Dinar, and
Williams 2006). The destruction of their weak or non-existent infrastructu-
383INTERNATIONAL DEVELOPMENT ASSOCIATION
re caused by natural disasters, such as floods, droughts, and storms — that
happen more frequently and with greater magnitude because of the higher
temperatures — is one of the more direct manners whereby these nations
are impacted (Mijalković and Cvetković 2013). These immediate effects
have both short and long-term consequences. In the short-term, the disas-
ters destroy critical infrastructure and contribute to generalized outbre-
aks of several diseases, overwhelming public health systems and causing
severe human losses. In the long-term, however, the impacts may be more
far-reaching, since the destruction of infrastructure associated with the
exporting sector, as well as the damage to crops and other products, trigger
a sequence of events that might cause trade deficits, economic recession
and, ultimately, food shortage (Diaz 2007).
Thus, the necessity of establishing frameworks within international
institutions to address not only these economic and climatic but also sani-
tary issues was brought forward. Various international organizations made
efforts in that direction, including the United Nations (UN), which pio-
neered such endeavors in many ways. The creation of the United Nations
Central Emergency Response Fund and its rapid response window was of
the first major attempts to address the new challenges of the 21st century.
The goal was to further the funding to assist countries affected by seve-
re humanitarian crises through donations from its Member States (United
Nations 2005). However, the amount of money available for said operations
was limited by the will of donor nations to contribute; and the eligibility
criteria established by the various UN aid agencies, which are rather flexi-
ble, enable funds to be directed to countries that are not necessarily among
the poorest in the world (United Nations 2011). Considering those flaws,
it fell upon other institutions, such as the World Bank Group, to provide
rapid response funding, following stricter guidelines, to poor countries in
emergencies (Baulch 2004).
Within the World Bank Group, it was suitable that IDA took respon-
sibility for providing financial support to impoverished countries facing
crises. Two mechanisms were put in place at the beginning of this decade
to formalize and facilitate quick responses to critical situations: the Crisis
Response Window (CRW), and the Immediate Response Mechanism (IRM).
Each of these funding processes serves a different purpose, in the sense
that they are based on different approaches and have different goals in
providing the financial resources to handle with emergencies (IDA 2018a,
2018b).
The IRM, created in late 2011, is a significant asset to IDA’s crisis ma-
nagement structure. The idea behind the creation of the mechanism was
to enable the disbursement of funding for countries facing crises or emer-
gencies in the shortest time possible. For a country to be eligible to receive
funding from the IRM, it should, besides already being an IDA country, be
facing “[...] major adverse economic and/or social impacts resulting from
an actual or imminent natural or man-made crisis or disaster.” (WBG 2007,
384CRISIS RESPONSE WINDOW: FUNDS ALLOCATION FOR ECONOMICALLY DISRUPTIVE CRISES
1). If the nation complies with such criteria, it will be able to draw up to 5
percent of its undisbursed IDA portfolio13. Smaller nations, that have small
undisbursed portfolios, may demand up to USD 5 million in financing, even
if that is higher than the previously established 5 percent, in order to be
able to adequately respond to emergencies (WBG 2011). Thus, the IRM ser-
ves its purpose providing short-term financing to smaller disasters or to
prevent the escalation of situations. However, long-term disaster manage-
ment and recovery fall beyond the scope of this mechanism (WBG 2018a).
The CRW, on the other hand, proposed in 2009 and effectively created
at the beginning of 2011, provides emergency financing with long-term de-
velopment goals. It encompasses a wider array of emergencies, such as lar-
ge-scale natural disasters, severe economic shocks, and epidemics as well
as other public health calamities (IDA 2018a). Reaffirming the need for IDA
to take more decisive actions to help low-income countries deal with the
aftermath of the 2008-9 financial crisis and with ever more frequent natu-
ral disasters, the proposal for the creation of the CRW intended to make
around USD 1,5 billion available for crisis recovery within its first IDA cycle
(IDA 2009). However, after the proper establishment of the CRW in 2011, it
met an extraordinarily high demand for funding within the first few years
of existence, which required a mid-cycle doubling of the available funds
for IDA17, initially set at USD 900 million. This demand decreased over the
following years, but the CRW continues to be crucial to the financing of
crisis response and post-emergency reconstruction in a timely and trans-
parent manner, as was its original intention (WBG 2018b).
3 STATEMENT OF THE ISSUE
In light of the historical background, the next section seeks to ad-
dress more directly the actions taken by IDA and its Crisis Response Win-
dow, as well as the principles basing it. Firstly, a discussion on development
and the role of foreign financial aid, such as the one provided by the CRW,
will be presented. Afterward, the study guide addresses the conditions
under which IDA lends funds and countries are eligible to receive them.
Finally, this section presents examples of current situations in which the
CRW is being utilized to deal with crises of different natures. The point,
therefore, is to present the reasoning behind the actions taken, as well as
to state both theoretical and practical aspects of the issue.
3.1 CRW FINANCING AND CONDITIONS
13 Undisbursed balance is the amount of IDA funds available to one country that has not yet been com-
mitted to other projects within that same IDA cycle (IDA 1992).
385INTERNATIONAL DEVELOPMENT ASSOCIATION
When thinking about the functioning of IDA’s Crisis Response Win-
dow, two major concerns are presented to the Board of Governors of the
organization. Primarily, problems regarding the financing of the CRW:
from which fund or budget the capital to finance the CRW projects should
come from and the amount of money that should be allocated for the Cri-
sis Response initiative. With the financial question resolved, the Board
must decide which countries are worthy of receiving aid from IDA; in other
words, which conditions allow a nation to receive financing through the
CRW mechanism. Therewithal, criteria that establish which crises are seve-
re enough to be approached by the CRW and priorities for the allocation of
resources within these nations engulfed by crisis also must be formulated
by the Governors (IDA 2009, 2010b). All of these questions are going to be
explained in the following two sections.
3.1.1 FUNDING THE CRW AND COUNTRY ELIGIBILITY
The first question to be approached is the matter of the financing
of the CRW. As of the creation of its pilot project14, in 2010, the problem of
where to find the money to finance the project emerged (IDA 2010c). The
simplest response is to reallocate from the already established budget of
the fiscal years that compose the current period of replenishment of IDA
and transfer to CRW projects. Albeit a simple solution – and although the
budget for the CRW corresponds to less than 10% of the total IDA expen-
diture15 –, the mere budgetary rearrangement comes with the price of the
deviance of the utmost purpose of IDA, namely the financing of long-term
projects that promote sustained development in poor countries (WBG
2019e).
By transferring resources from the current budget of IDA to the
newly created CRW mechanism, the Board could be “taxing” the finance
of other current projects of the organization. In other words, IDA’s budget
has already been committed to projects of sustainable development in the
long-term. Channeling parts of the budget for the CRW would correspond
to a shortage of resources for these types of projects, which are of utmost
importance for the combat of impoverishment and underdevelopment
worldwide. Therefore, the simple management of resources of the budget
is not a viable choice (IDA 2010b).
When by the time of the 16th IDA replenishment cycle, some solu-
tions for this problem were brought to appreciation for the establishment
14 Before the CRW consolidation as a permanent mechanism of IDA, a pilot CRW was created in 2010 as
a test for the permanent one that would be implemented – regarding the experiences that occurred in
the pilot model – in 16th replenishment (IDA 2010c).
15 n the last years, the percentage of the CRW budget in relation to the total IDA budget has been
growing. During IDA16, CRW represented 1,5% of all IDAs expenditure; in IDA17, 3%; and in IDA18, 4%
(WBG 2019e).
386CRISIS RESPONSE WINDOW: FUNDS ALLOCATION FOR ECONOMICALLY DISRUPTIVE CRISES
of the permanent CRW. Three solutions were found for the financing pro-
blem. The first one consists of the ex-ante financing of the CRW projects. In
this modality, donors in every IDA cycle would establish a certain amount
of money to be utilized in the CRW initiative only. The second option would
consist in the ex-post financing. In this type of financing, the organization
would disburse its own resources for the financing of the CRW projects,
while the member countries would be responsible for compensating IDA’s
hand out in the next replenishment cycle with additional donations to the
organization’s budget (IDA 2010a).
Both modalities have their positive and negative points. Ex-ante
financing permits a less complicated financing scheme and a rapid deploy-
ment of the resources for nations in crisis. On the other hand, determining
the budget for the CRW before the request of project financing could beco-
me a problem, due to the uncertainties related to crises. The Board cannot
predict the number of crises that will occur worldwide during the reple-
nishment cycles, therefore the budget allocated could be insufficient to at-
tend the needs of the countries eligible for the CRW financing. The ex-post
financing has the precise benefit of more budgetary flexibility concerning
the possible demands of countries in crisis that can access the CRW resour-
ces. However, members of IDA showed their concern in being able to refund
IDA’s disbursements in the subsequent replenishment cycle (IDA 2010a).
The third solution is, in reality, a complementary modality of the
other two types of financing presented. It consists of the creation of a trust
fund, in accordance with the already existing ones in IDA, for the CRW. In
that way, member countries would be invited to contribute with this trust
fund – as an extra donation, additional to IDA’s replenishment budget con-
tribution. Donor countries could also establish a mild precondition for the
utilization of their donation16 (IDA 2010a). This trust fund, therefore, could
be an auxiliary method of financing the CRW projects.
Member countries of the Board decided on the ex-ante financing
option during the creation of the permanent Crisis Response Window. The
problem involving this kind of financing modality, however, persisted. It
was decided, then, that an additional contribution could be made by the
countries, if the amount of money dedicated to the CRW runs out in the
middle of the replenishment cycle. Moreover, if the additional borrowing
is not possible, the IBRD could make bridge loans to the countries in need
of assistance (IDA 2010a).
With the budget for the functioning of the Crisis Response Window
determined, it is necessary to comprehend the variables that make a cou-
ntry eligible for the CRW aid. The conjugation of multiple factors defines
if a nation is worthy of the crisis response financing – such as what caused
the crisis, its severity, the level of development of the country, etc. The next
16 Donor countries can allocate their donations with a “soft earmarkation”. In other words, they pro-
vide an amount of money that will be used when a certain kind of crisis, specified by the donor, occurs
(IDA 2010b).
387INTERNATIONAL DEVELOPMENT ASSOCIATION
paragraphs will approach these factors.
For a country to be eligible for financial aid of the CRW, it first must
be classified – within the World Bank Group classification – as an IDA-only
country (IDA 2009, 2010a, 2012). To be classified as an IDA-only country me-
ans that these specific countries have a low level17of Gross National Income
(GNI) per capita and do not have access to other financial institutions that
grant loans as the IRBD and the IMF, for instance (Moss, Standley, and Bird-
sall 2004). Nowadays, 59 of the 75 IDA borrowers are countries classified as
IDA-only (IDA 2018b), which are eligible for the CRW financial assistance.
However, this classification is not the only pre-existing requisite, as oil ex-
porter economies cannot apply for the CRW assistance18 (IDA 2012, 2018a).
Therefore, 57 countries can receive the aid of the crisis response mecha-
nism (IDA 2012, 2018b)19.
3.1.2 DEFINING CRISIS ELIGIBILITY
Having defined the countries that are allowed to receive financial
assistance from the CRW, it is necessary to establish the other criteria for
eligibility. Even though the crisis response initiative was created for com-
bating the deleterious effects of the 2008-9 economic crisis and natural di-
sasters, not every area suffered these negative effects equally, as not every
natural disaster or economic crisis has the same severity. In a reality of
scarce resources, it is important to delimit a clear method for the allocation
of financial aid (IDA 2010b).
Therefore, not every crisis will trigger the financial help of the
CRW. To be eligible for the financial aid of the CRW, these must attend to
two criteria. Primarily, the crisis the candidate state is suffering must be
caused by an external shock – due to economic, natural or sanitary causes
(IDA 2010b). Recognizing the difficulty in some cases to determine if the
situation that a nation is going through is caused by external or internal
factors, it was decided that the Board of IDA will have to analyze and define
each case individually (IDA 2010b).
17 The World Bank Group divides their associate countries into four income groups, being the “low-
-income” the bottom group of countries and the “high-income” the top income group of countries. To
be identified as a low-income country, the state needs to have a GNI per capita equal to or lower than
USD 995 (WBG 2018c).
18 According to the Board, nations that export oil have accumulated great revenue from the price leve-
rage in the last years, granting them the financial resources needed to build the economic resilience to
endure the global economic crisis period. However, the Board can reach the understanding that these
countries do not have any economic advantage as oil exporters anymore, allowing them to receive
financial help in future crises (IDA 2012).
19 At the beginning of the Crisis Response Window program, Angola, Chad, the Republic of the Congo,
and Nigeria were not considered to receive help through the mechanism for being oil exporters. Howe-
ver, since Angola and Nigeria were graduated from the IDA-only condition recently, these two nations
cannot apply for CRW funds in any given condition anymore (IDA 2012, 2018b).
388CRISIS RESPONSE WINDOW: FUNDS ALLOCATION FOR ECONOMICALLY DISRUPTIVE CRISES
Once the Board has verified the external nature of the crisis of a
possible borrower country, there is still one more condition that the coun-
tries must contemplate for receiving the grants of IDA’s crisis response (IDA
2010b). In order to borrow money from the CRW, the crisis experienced by
the country must cause a drop of at least 3% in the Gross Domestic Product
(GDP) projection of the country’s economy (IDA 2010b). This precondition
of a considerable drop in the GDP projection was established by IDA becau-
se, if a less strict condition was stipulated for releasing funds to nations
suffering from a crisis, the core objective of the crisis response initiative
would be compromised and perhaps the countries in most need of assistan-
ce would not receive sufficient resources (IDA 2010b).
At last, it is important to determine which countries would recei-
ve preference in the CRW. As mentioned above, the amount of capital the
CRW possesses to assist states in crisis is considerably limited. Therefore,
a criterion must exist to prioritize those nations that suffer more from the
consequences of a crisis (IDA 2009). As a result, IDA-only candidates are
classified according to measurements that represent their vulnerability ba-
sed on their situation before the beginning of the crisis and the impact of
it in the countries’ future (IDA 2009). Countries are classified based on their
pre-existing needs – measured by their GNI per capita rate – before the
occurrence of the crisis and by the impact of the crisis in their country –
measured by the decline in the GDP growth prediction after the crisis. (IDA
2009).
These two economic data are used as variables to determine which
country will have more funds and projects allocated to. Utilizing these two
variables, the Board classified the preexisting necessities and the crisis im-
pact projection of the applicants for aid as “low” or “high” to better guide
the funds’ allocation. In other words, countries with high preexisting need
will have less capabilities to manage the adversities brought by the exter-
nal shock, owing to the lack of social security nets for their population, the
lack of financial power to assist their population or their macroeconomy,
and the low acquisitive power of the households of these countries. Thus,
those nations will receive more aid and more resources than those with
lower needs (IDA 2009).
Following the same logic used for the previous needs, the countries
most affected in their GDP forecast by the crisis will receive the largest
amounts of money and be prioritized by the CRW (IDA 2009). Therefore, it
is correct to assume that countries with greater previous needs and that
suffered more with the impacts of the crisis will receive more aid from the
CRW; on the other hand, states with fewer necessities and less affected by
the crisis will receive lowest amounts of money from IDA (IDA 2009). It is
important to highlight that the grading of the crisis impact and the pre-
vious needs of the IDA-only countries will be made by the Board. It will be
the responsibility of the Board to establish which countries will receive
priority in the financial help between the economies with high preceding
389INTERNATIONAL DEVELOPMENT ASSOCIATION
needs and low crisis impact forecast and the high crisis impact economies
with low previous necessities.
With the channels of financing of the Crisis Response Window
analyzed and the conditions that allow a state to request aid from this IDA
mechanism set, it is necessary to better investigate the causes that drive
the nations into the crisis. The next sessions will discuss each type of crisis
that is in the scope of the CRW aid and the ways to mitigate their damages
in the countries through the financial help provided by IDA.
3.2 CRISIS SITUATIONS AND POSSIBLE OUTCOMES
To better understand the complexity of the challenges that borrowing
countries from IDA may face, it is important to take notice of the origins
and possible solutions of each model of crisis. As seen, the bureaucratic
apparatus of the organizations takes into account an extensive number of
preconditions in order to use the Crisis Response Window’s funding. The-
refore, each case must be scrutinized by the Board of Governors in order to
determine the best approach to a viable and sustainable crisis resolution.
The following subsections aim to explore such particularisms of the three
viable crisis aid options as well as to better elaborate on how to handle
their outcomes.
3.2.1 ECONOMIC CRISIS SITUATION
The primary objective attributed to the Crisis Response Window was
to serve as an emergency aiding fund to those poor countries facing severe
economic crises. Given the current crisis faced worldwide, the conditions,
as well as the utilized concept, must be properly delineated. An economic
crisis occurs when the annual growth rate of a real GDP per capita drops
below zero, becoming negative. Therefore, “severe economic crisis” may
be interpreted as a drastic reduction – at least -3% according to IDA re-
gulation – deeply affecting developing economies and compromising its
living standard (Hausmann, Rodriguez and Wagner 2008; IDA 2010b). Cur-
rently, the International System faces an unstable financial ground, due
to the dissolution of the former structure of the Washington Consensus;
consequently one can highlight worldwide struggle with loan debts, and
the central states’ skepticism with sponsoring poorest countries economic
crises’ relief, as some of the contemporary challenges of the global eco-
nomy (Brookings 2007). Notwithstanding, the CRW structure persists in
order to guarantee at least some degree of financial aid to those in arduous
economic situations.
In the matters of economic crises, it is important to notice that
their existence is not an exceptional situation in the world order or tra-
390CRISIS RESPONSE WINDOW: FUNDS ALLOCATION FOR ECONOMICALLY DISRUPTIVE CRISES
ditional economic functionality, but a default dysfunctional characteristic
of the capitalist system (Minsky 1982). Therefore, the terms of condition
and requirements in order to acquire any help from international institu-
tions are foremost strict and bureaucratic. Although economic crises affect
negatively all countries upon which they befall, it is undeniable that the
impact in poor and developing countries have bigger internal proportions;
even though it is important to note that economic fallout in large econo-
mies and great powers ends up affecting the world economy as a whole
(Hausmann, Rodriguez and Wagner 2008). The main reasons for such dis-
parities are structural economic deficiencies, such as productive speciali-
zation in one product exclusively, high rates of unemployment, or other
specific settings of the country (Hausmann and Kingler 2006).
While analyzing past economic crises, the importance of rapid res-
ponses is noteworthy, for when not contained, their escalation is certain
(Hausmann, Rodriguez and Wagner 2008). As it was observed by Mishkin
(1999), given the terms that guide the loaning conditions of the IMF, every
loan must be thoroughly negotiated, and because of that, it may take va-
rious months before the institution’s funds are at the country’s disposal.
Hence, when the aid is finally available, the crisis has often escalated in
such a way that the amount needed to cope with the situation would finan-
cially damage the resources of any possible donor or lender organization.
All things considered, the need for quick provisions becomes evident; one
way to attend such a viable solution – that is already arranged by the CRW
– is to have strict and clear terms and conditions for loan admissions (Haus-
mann, Rodriguez and Wagner 2008; Mishkin 1999). Nevertheless, when it
comes to the actual decision-making of the Board of Governors of the CRW,
the process can be held up for political or contingency motivations. This
must be avoided at all costs if the objective of the Board is to effectively aid
and mitigate severe economic crises.
In the past three decades, the International System experienced three
global recessions, namely in 1982, 1991 and 2009. As appointed by the IDA
Resource Mobilization Department (2010) – based on IMF World Economic
Outlook data –, in all those episodes, 30 percent or more of IDA countries
faced a growth decline that can be classified as a severe economic crisis
(IDA 2010a). As it was previously mentioned regarding the procedures to
be accepted as a viable borrower by the CRW’s Bureau, the Board must be
informed of the need to access the CRW resources which will be approved if
the crisis has been caused by exogenous shocks – that affected multiple IDA
exclusive countries, or spread widely within a specific region – followed
by a projected decline of GDP growth of 3 percent minimum. These pre-
-requisites are subsequently followed by an analysis of the fiscal impact
that highlights the importance of an international response (IDA 2018a).
Recent examples of the usage of such bureaucracy were during the Fiscal
Year of 2017, in which USD 150 million of the CRW quota was allocated as
a response to commodity price shocks in Chad, Guinea, Liberia and Sierra
391INTERNATIONAL DEVELOPMENT ASSOCIATION
Leone (IDA 2017).
3.2.2 ENVIRONMENTAL CRISIS SITUATION
The Crisis Response Window is also an important response tool in
environmental crisis situations. Although its original focus was to assist
developing countries suffering from economic shocks, the increasing num-
ber of natural disasters linked to climate changes in the last decades has
shown the urgency of this situation to also be addressed by the CRW me-
chanism, which has a major role in the crisis impacts mitigation (IDA 2009).
The CRW performance has developed new forms to address the needs
of each case, given that all operations must consider the specificities and
main requirements of each situation and place (WBG 2019f). From the un-
derstanding that environmental phenomena directly affect states all over
the world, the CRW, through international cooperation, strives to rebuild
and to prepare the impacted countries for future crises (IDA 2009; WBG
2019g).
Climate change impacts lives worldwide. The Global Facility for Di-
saster Reconstruction and Resilience (2016) estimates that about 2 billion
people were affected by natural disasters in the last few years, which also
caused the death of more than one million people and economic losses that
reached around three trillion dollars (WBG 2019h). The main reason for
these events is the increase and aggravation of floods, the sea level rise,
storms, hurricanes, and intense heat waves, which result from global war-
ming intensified by human action (Viola and Basso 2016; WBG 2019g). Con-
sequently, climate change also deteriorates water and food supplies contri-
buting to the spreading of diseases that directly affect the most vulnerable
portions of the population, such as low-income citizens and small island re-
sidents. Therefore, not only is the development of these populations thre-
atened, but also is their dependence on external help increased (GFDRR
2016, WBG 2019i).
To deal with the complexity of this situation it is necessary to appro-
ach reality through different strategies (GFDRR 2018a). When working with
reconstruction and recovery of affected places, it is important to consider
the risk variables identified by the Global Facility for Disaster Reduction
and Recovery (2018a), those being hazard, exposure, and vulnerability. The
first one is linked to natural phenomena such as floods, earthquakes, and
storms; exposure takes into account the physical characteristics of the site
which is being analyzed, as its location and topography; the risk variable
focus in the aspects that demonstrate how susceptible to the effects of a
hazard that place is (GFDRR, 2018b).
According to this, the World Risk Report (Bündnis Entwicklung
Hilft 2018) established that the most vulnerable places to environmental
disasters are located in Oceania, Southeast Asia, Central America, and Afri-
ca. These regions concentrate a group of smaller states in need of special
392CRISIS RESPONSE WINDOW: FUNDS ALLOCATION FOR ECONOMICALLY DISRUPTIVE CRISES
aid, which are called Small Island Developing States (SIDS) and together
these states represent 5% of the global population of developing countries
(IDA 2009). Given their small size and usual geographical isolation, their
vulnerability is enhanced, meaning that when any natural event happens,
all the population is affected (WBG 2019g, GFDRR 2017). These conditions
also imply human, economic, and environmental costs, as well as long-term
impacts. To avoid that, it is necessary to put more effort into solutions to
mitigate and resolve the impacts by reacting with structural reforms, pro-
viding infrastructure and public services (IDA 2009).
In 2017, many regions were affected by natural hazards. In the “Latin
America and Caribbean” and the “Europe and Central Asia” (ECA) regions,
hurricanes and earthquakes caused hundreds of deaths and abundant los-
ses. In Africa, natural disasters were intensified by previous problems as-
sociated with a lack of food security and poverty. In the “Middle East and
North Africa” (MENA), as well as in South Asian regions, the natural pheno-
mena still threaten the population and the economy (GFDRR 2018a).
Even though all regions are vulnerable to these situations, the “East
and Pacific” (EAP) is five times more prone to face natural disasters (GF-
DRR 2018a); nevertheless, they are not able to reduce disaster risk without
external help (Bündnis Entwicklung Hilft 2018). Developed countries have
a fundamental role in assisting these regions, given their higher incomes
and infrastructure know-how to resist and mitigate the consequences of
natural hazards (WBG 2019g).
The major amount of resources intended to help crisis situations of
environmental character goes mostly to mitigation – used to avoid and to
reduce the impacts of climate change – and the remaining amount goes
to adaptation – responsible for dealing with present and future impacts
(Bosello, Carraro, and de Cian 2010). Nonetheless, both mitigation measu-
res and adaptation ones need to be addressed together (Biesbroek, Swart,
and Van Der Knaap 2009). The main explanation for this specific spending
regards the difficulty to perceive immediate benefits from adaptation fi-
nancing, given unknown circumstances, such as time, frequency, and mag-
nitude of the possible hazards, since mechanisms of adaptation are mostly
noticeable in a long-term period. The ability to manage development re-
quires certain considerations about the present and future possibility of
impacts of climate change risks. It requires actions in order to attain adap-
tation and resilience capacity, once these characteristics are profoundly
connected to development (WBG 2019i).
It is common to realize that prolonged crises are associated with
fragility, conflict, and violence that mutually reinforce each other and are
capable of intensifying and delaying recovery periods. In this case, it is im-
portant to approach the concern revolving around basic services such as
transport, healthcare, and education, three of the most affected services
after a crisis (GFDRR 2018a). In these scenarios, when the CRW financing
aid is required, some steps must be followed, starting with the immediate
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