What is the World Bank?
The World Bank was one of the significant institutions formed as part of the Bretton Woods Conference in 1944. Initially formed to facilitate post-war reconstruction, the focus shifted to becoming a bank lending fund to assist developing countries with their economic initiatives. Currently, the World Bank Group focuses on alleviating and eliminating poverty and is aligned with the UN Millennium Goals for 2000.
The World Bank today consists of five related, development-oriented institutions:
• the International Bank for Reconstruction and Development (IBRD)
• the International Development Association (IDA)
• the International Finance Corporation (IFC)
• the Multilateral Investment Guarantee Agency (MIGA)
• the International Center for Settlement of Investment Disputes (ICSID)
Evolution of Role
The World Bank evolved from a reconstruction bank to a development bank. In the 1960s, the Bank began to transition from reconstruction to development – completing that by about 1970. During the 1970s, in the era of the NIEO, the Bank lent money similar to a commercial lender – with little regard to the use of proceeds and encouraging additional borrowing on member states. As a result, the Bank fueled corruption and crushed debt service in countries simultaneously as it promoted a development plan.
As a result of criticism during this period, the Bank now requires borrowers to make a compelling economic case to underpin the loan request. Additionally, beginning in the 1980s, the Bank added social and economic analysis into the lending decision process. In the 1990s, an Inspection Panel was empowered to conduct internal audits and maintain lending standards.
Today, the World Bank funds nearly 2,000 projects totaling some $60 Billion, mainly to promote essential services in developing countries. In addition to the loan program, the Bank also provides grants, no-interest loans, technical assistance, and other support to reduce poverty’s effects. Some of the areas of emphasis include HIV/AIDS relief, water purification, and sanitation efforts.
Today’s World Bank
Today, the World Bank is a specialty agency of the UN, comprising over 180 member countries. Operating like a cooperative, the Bank’s governance structure is based on the level of equity invested by member nations. The United States is the largest shareholder and traditionally has an American as President. The Board of Governors, consisting of the finance ministers of the member nations, meets annually to set policy. The weighted voting system creates a bloc under which the EU and US control significant voting power. However, the EU has not generally voted as a bloc, leaving the US as the most influential member based on voting power.
The Bretton Woods Agreement of 1944, establishing the World Bank, laid out Article I of the Charter, a broad economic mandate. The purpose of the Bank was to:
-Assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes, including the restoration of economies destroyed or disrupted by war, the reconversion of productive facilities to peacetime needs, and the encouragement of the development of productive facilities and resources in less developed countries.
-Promote private foreign investment utilizing guarantees or participation in loans and other investments made by private investors; and when private capital is not available on reasonable terms, to supplement private investment by providing, on suitable conditions, finance for productive purposes out of its capital, funds raised by it and its other resources.
-Promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment to develop the productive resources of members, thereby assisting in raising productivity, the standard of living, and labor conditions in their territories.
-Arrange the loans made or guaranteed by it with international loans through other channels so that the more practical and urgent projects, large and small alike, will be dealt with first.
-Conduct its operations with due regard to the effect of international investment on business conditions in the territories of members and, in the immediate post-war years, to assist in bringing about a smooth transition from a wartime to a peacetime economy.
This broad mandate allows for significant conditional influence over the domestic affairs of the borrower states.
Recent World Bank Actions
The World Bank underwent a refocusing beginning in 2012. The Bank replenished the International Development Association funds with nearly $4 Billion. The Bank also looked at microfinance and other low-cost, low-interest loans in the private sector. In contrast, the public sector areas of the Bank simplified pricing and repayment terms for member nations. The desire was to focus the Bank’s strategy on poverty alleviation while supporting the UN Millennium Development Goals and assisting with reconstruction from regional conflicts.
2008 Financial Crisis
The 2008 Financial Crisis saw the World Bank engage at a level unprecedented in its history. The Bank provided nearly $90 Billion in support to member states, including fast-tracking and streamlining the loan review process and funding additional projects supporting social safety nets, health and welfare programs, basic infrastructure, and education initiatives. These ranged through private and public sector initiatives and assisted the hardest-hit countries with food supplies, job creation, and infrastructure development.
What’s Next?
The 2008 Crisis fomented calls for comprehensive financial reform, including looking at the World Bank’s role. A call for a “New Bretton Woods” to respond to the lessons learned from the crisis resulted in a meeting of the G20 in November 2008 to discuss and analyze future steps. Over the last 70 years, the Bank has evolved from a reconstruction bank to a development bank to a poverty alleviation mission. In 2008, it assisted developing and developed nations hardest hit by the financial crisis. While the Bank’s future remains under discussion, its role and effectiveness since 1944 have been one that has made a meaningful impact on international development.