Measuring the Classification Effect
4.2 Classification Experiences
In order to learn about how countries experience these transitions between categories, I carried out several interviews of elites based in Washington, D.C., from June to August 2016. These interviews were designed to be theory-building: They contributed to the theoretical framework, which I then tested systematically above, but I present them here to illustrate examples of the patterns described above in the experiences of specific graduating countries. To this end, I created a sample of countries, and for each country I interviewed elites who would be able to speak to its experience. This approach treats countries as unitary actors — that is, a whole country experiences
18See Bradley (2015).
19For a countervailing perspective, see Bush (2017).
a classification in the same way and pursues a coherent goal. While I often interviewed multiple individuals about a country, I consider these to be multiple data points about a single (country) observation. This is in contrast to the design of the interviews in Chapter 6, which seek to unpack the separate experiences and preferences of various groups and individuals within a country.
In order to anchor my interviews in policy issues of relevance to interviewees, I focused these conversations on proposed changes to policy regarding graduation from the World Bank’s grant and concessional loans program, the International Development Association (IDA). As explained in Chapter 3, graduation discussions begin when a country crosses a GNI per capita cutoff known as the “operational cutoff.”20 This triggers an assessment of the country’s creditworthiness; if it is found creditworthy, it begins also borrowing from the International Bank for Reconstruction and Development (IBRD) on harder terms. The country can continue borrowing from both banks for a few years as a “Blend” country, but every three years when donors convene, they will evaluate whether to graduate the country from IDA so it only borrows from the IBRD. IDA graduation policy reform is currently one of the most pressing issues within the World Bank because so many populous and geopolitically important countries are expected to soon graduate to Blend or IBRD status, challenging the resource constraints of the IBRD. Furthermore, my conversations occurred during a year of one of these donor meetings (known as replenishments), so the topic provided a natural context for discussing these dynamics. While conversations focused on IDA graduation, mentions of other classifications also arose in conversations.
I constructed a group of all recent and upcoming IDA graduates, which appears in Appendix Table B.10. For each case country, I sought to interview representatives from the graduating coun-try to the World Bank, officials at the World Bank who worked with the graduating councoun-try, and representatives from donor countries who had interacted with the graduating country (either Ex-ecutive Directors of the World Bank or Deputies to IDA replenishment meetings). Often, officials in these latter categories had experiences with multiple graduating countries. I tried to maximize
20This cutoff is about $200 higher than the threshold separating low and lower-middle income countries. It is also updated each year to account for inflation.
Table 4.4: Cases and donor perspectives represented in World Bank interviews Donor Recent graduates Blends IDA-only
Australia Armenia Moldova Bangladesh
Netherlands Bosnia and Herzegovina Sri Lanka Bhutan
UK Georgia Vietnam Kenya
USA India Kyrgyz Republic
Lao PDR Myanmar Zambia
Table 4.5: Sources for information by country group in World Bank interviews Donor Recent graduate Blend IDA-only
IDA Deputy 2 0 4 0
Executive Directors Offices 4 8 2 1
Country Desk Staff 0 2 2 5
this by focusing my energies on the interviewees that had experiences with the greatest number of countries. While this means that the countries I learned about are not a random sample of all re-cent and upcoming IDA graduates, it allowed me to learn about the greatest number of graduation experiences given the limited availability of highly expert interviewees.
The resulting eighteen interviews included perspectives from four IDA Deputies (or Advisors to IDA Deputies), six Executive Directors (or Advisors to Executive Directors), seven Country Desk Officials, and an IBRD Credit Risk Officer. We discussed the cases or interests of four donor countries, four recent graduates (IBRD-only), three Blend countries (two currently under consideration for graduation), and seven IDA-only countries above the operational threshold. The specific cases we discussed are reported in Table 4.4. Many cases arose in multiple conversations, and conversations frequently drew on the interviewee’s knowledge of several cases. Therefore, Table 4.5 presents a summary of the various sources who spoke to various cases.
Consistent with hypothesis 1A, many countries associated IDA graduation with losses in aid, even and especially from outside the World Bank. Several interviewees reported that graduating from IDA caused them to lose access to other sources of aid. One of the current candidates for graduation, Vietnam, has already reported losing access to bilateral funds as a result of its
can-didacy.21 The same has occurred for previous graduates Armenia and Georgia. A former World Bank official from Georgia stated that one donor backed out of a trust fund and cited Georgia’s loss of IDA status as its reason for doing so. Furthermore, following Armenia’s and Georgia’s 2014 graduation, Georgia nearly lost its regional hub because it was viewed as less important to World Bank operations.22 A World Bank Board official representing Armenia and Georgia noted that dur-ing 2016 negotiations over graduation policy reform, a proposal for access to an additional source of financing called IDA+ for recently graduated countries was withdrawn because “IDA is for the poorest countries.”23 Even the countries that have not yet become categorized as Blend anticipate this dynamic. One advisor spoke of Zambian officials’ concern about losing access to aid, par-ticularly after crossing the LMIC/UMIC threshold.24 In summary, one advisor stated, “Proposed IDA graduation reforms do not address the issue of perception of countries as IDA and non-IDA by the donor community.”25 The perception that donors coordinate on World Bank classifications was widespread; one IDA deputy stated, “we all know it goes on.”26
In the donor community, several pieces of evidence are consistent with the strategic mecha-nism. Many donors formally tie eligibility for their assistance to the World Bank analytical income classification system. Even though the World Bank has never attached any material benefits to these categories, the Global Fund to Fight AIDS, TB, and Malaria,27 the Millennium Challenge Corporation (MCC),28 and Gavi,29 all include income classifications in their eligibility policies.
M´edecins Sans Fronti`eres notes that MICs are often excluded from voluntary license agreements with pharmaceutical companies and are therefore penalized in tiered pricing schemes, limiting
21Author’s interview with IDA deputy, July 22, 2016, Washington, DC.
22Author’s interview with former advisor to Executive Director, August 2, 2016, Washington, DC.
23Author’s interview with advisor to Executive Director, August 3, 2016, Washington, DC. The recent graduates were Angola, Armenia, Bosnia-Herzegovina, and Georgia.
24Author’s interview with advisor to Executive Director, July 21, 2016, Washington, DC.
25Author’s interview with former advisor to Executive Director, August 2, 2016, Washington, DC.
26Author’s interview with IDA deputy, July 22, 2016, Washington, DC.
27http://www.theglobalfund.org/documents/core/eligibility/Core_
EligibilityAndCounterpartFinancing_Policy_en/
28https://www.mcc.gov/resources/doc/report-candidate-country-fy-2016
29http://www.gavi.org/support/apply/countries-eligible-for-support/
the provision of vaccines to countries with some of the highest rates of HIV/AIDS.30 To rely on classifications as heuristics is one thing; to formally commit to using them as a matter of policy demands a higher level of scrutiny and defense, making it less likely that cognitive biases account for these behaviors. Furthermore, while representatives of donor governments are disincentivized to be candid about strategic incentives for their allocations, some nonetheless are. As one U.S.
Treasury official commented, “When we can show that most of our aid is benefiting Least De-veloped Countries (LDCs) or fragile and conflict-affected states, this helps our numbers.”31 This logic is consistent with hypothesis 1B, as it implies that the need to show numbers drives the use of classifications.
While these discussions laid the basis for my predictions about donors, they were less useful for developing predictions about the behaviors of investors and raters for two reasons. First, a grad-uation from IDA to IBRD entails a formal (subjective) evalgrad-uation of creditworthiness by the World Bank. An IDA officer formerly in charge of assessing the creditworthiness of IDA graduates for IBRD lending noted that countries often pursue IDA graduation as a “stamp of approval” because it helps reduce their borrowing costs on the open market.32 While consistent with my findings, this relationship could alternatively be explained by the private information contained in classifications like these lending categories. In other words, I cannot rule out alternative explanations in this case.
Second, World Bank lending categories are not widely known beyond the world of development finance. While donors will be familiar with the meaning of these categories, it is less likely that other audiences would know the difference between IDA-only, Blend, and IBRD labels. In this way, the World Bank lending categories are an example of an issue-specific classification that will have limited reach, the opposite of the kind of classification described in hypothesis 7.
30https://www.msfaccess.org/sites/default/files/MSF_UTW_17th_Edition_4_b.pdf
31Author’s interview with U.S. Treasury official, August 5, 2016, Washington, DC.
32Author’s interview with IBRD credit risk officer, July 26, 2016, phone interview.
4.3 Summary
In sum, this chapter has provided observational evidence to support my claims that classifications drive the behaviors of international observers. I showed using cross-national data that countries receive less aid but more favorable ratings of their creditworthiness and democracies when they become MICs according to the World Bank. These patterns also characterized the experiences of several countries who have graduated from the World Bank’s IDA group to its IBRD group, as I learned during my interviews with a variety of stakeholders in this process. In the next chapter, I focus on the aid results, where my observational evidence cannot decisively determine whether the mechanism at work is a cognitive or strategic one. I will offer experimental evidence to illustrate that donors are especially sensitive to a strategic mechanism.