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Introduction;
During
the Great Depression of the 1930s, many countries devalued their currencies and
placed restrictions on trade in order to maintain domestic income. As more and
more countries adopted these measures, the unintended result was a reduction in
trade and employment and in turn, World War II brought great destruction to
many countries[1] As a
result of these, the World Bank and the IMF were founded by the United States,
Great Britain, and their war time allies at the Bretton Woods Monetary and
Financial Conference in 1944.[2]
The World Bank was created to help finance the rebuilding of Europe's
economies, and the IMF was created to supervise and foster an "open and
stable monetary system" and thereby promote a more efficient allocation of
resources.[3]
Bretton wood conference, this conference was not assembled merely to
pass a resolution and disband, it met to establish to institutions that have
helped to shape the postwar world. And the delegates of Bretton woods intended
that the bank would turn its attention first to repair the war damage and then
to making development loans. In his opening remarks at first meeting of the
Bretton woods commission on the bank, lord Keynes said;
“It is likely, in my judgment, that the field or reconstruction from the
consequences of war will mainly occupy the proposed bank in its early days. But
as soon as possible, with increasing emphasis as time goes on, there is second
primary duty laid upon it, namely to develop the resources and productive
capacity of the world, with special reference to the less developed countries”[4]
The World Bank is a
vital source of financial and technical assistance to developing countries
around the world. It is not a bank in the ordinary sense but a unique
partnership to reduce poverty and support development.[5]
It comprises on two institutions, namely, the International Bank for
Reconstruction and Development (IBRD), and the International Development Association
(IDA)[6].
It exists to encourage poor countries to develop by providing them with
technical assistance and funding for projects and policies that will realize
the country’s economic potential.[7]
History;
The World Bank came into existence in 1944 at
the Bretton Woods conference. Its formal name is the International Bank for
Reconstruction and Development (IBRD), which clearly states its primary purpose
of financing economic development.[8] The World Bank’s initial aim was to help rebuild European
countries devastated by World War II. Its first loan was to France in 1947 for
post-war reconstruction.[9]
When
these nations recovered some measure of economic self-sufficiency, the World
Bank turned its attention to assisting the world’s poorer nations.[10]
Purposes
and functions of World Bank;
The World Bank's official
goal is the reduction of poverty.[11]
The World Bank Group has set two goals for the world to achieve by 2030:- End extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3%
- Promote shared prosperity by fostering the income growth of the bottom 40% for every country.[12]
The
purposes of the Bank are:
(i)
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.
(ii)
To
promote private foreign investment by means of guarantees or participations 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
own capital, funds raised by it and its other resources.
(iii)
To
promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balances of payments by encouraging international
investment for the development of the productive resources of members, thereby
assisting in raising productivity, the standard of living and conditions of
labor in their territories.
(iv)
To
arrange the loans made or guaranteed by it in relation to international loans
through other channels so that the more useful and urgent projects, large and
small alike, will be dealt with first.
(v)
To
conduct its operations with due regard to the effect of international
investment on business conditions in the territories of members and, in the
immediate postwar years, to assist in bringing about a smooth transition from a
wartime to a peacetime economy.[13]
The World Bank provides low-interest loans,
interest-free credits, and grants to developing countries.[14]
The IDA was created to offer an alternative loan option. IDA loans are free of
interest and offered for several decades, with a ten-year grace period before
the country receiving the loan needs to begin repayment. These loans are often
called soft loans.[15]
Through
its loans, policy advice, and technical assistance, the World Bank supports a
broad range of programs aimed at reducing poverty and improving living standard
in the developing World Bank programs give high priority to sustainable social
and human development and strengthened economic management. Besides lending
money, the Bank provides technical assistance and policy advice through
services such as in-depth country assessments of poverty, country assistance
strategies, and public expenditure reviews, so that governments can set sound
long term strategies for pursuing economic growth.
It
also offer support to developing countries through policy advice, research and
analysis, and technical assistance.[16]
The Bank provides most of its financial and technical assistance to developing
countries by supporting specific projects.[17]
Its borrowing member countries also look to the Bank as a source of technical
assistance. The Bank also serves as executing agency for technical assistance
projects financed by the United Nations Development Program in agriculture and
rural development, energy, and economic planning.[18]
So, the Bank’s goal is to “bridge the
economic divide between poor and rich countries, to turn rich country resources
into poor country growth and to achieve sustainable poverty reduction.”
The objective and functions of World Bank
group can be summarized as under;
a)
To help in reconstruction and development of member
countries.
b)
Spread peace all over the world regarding financial
terms.
c)
Helps to the economies of those countries destroyed by
wars.
d)
Helps to developing and less developed countries by
crediting the finance.
e)
To promote private foreign investments.
f)
To promote long term balanced growth of international
trade.
g)
Maintenance of equilibrium in balance of payments of
member countries and also to increase the standard of living as well as labor
conditions of developing and less developed countries.
h)
Investment of money in productive purposes only.
i)
World Bank provides various technical services to member
countries.
j)
World Bank can grant loans to a member country up to 20%
of that country’s share in the paid up capital.
k)
The interest rate, quantities of loans and all any other
terms and conditions are determined by World Bank itself.
l)
The borrower nation has to repay either in reserve currencies
or in the currency in which the loan was sanctioned.[19]
Organization, Governance or structure of
World Bank;
The World Bank is like a cooperative, made up
of 189 member countries. These member countries, or shareholders, are
represented by a Board of
Governors, who are the ultimate policymakers at the
World Bank. Generally, the governors are member countries' ministers of finance
or ministers of development. They meet once a year at the Annual Meetings of the Boards of Governors of the World Bank Group
and the International Monetary Fund.[20]
The
governors delegate specific duties to 25 Executive
Directors, who work on-site at the Bank. The five
largest shareholders appoint an executive director, while other member
countries are represented by elected executive directors.[21]
World
Bank Group President Jim Yong Kim chairs meetings of the Boards of Directors and is
responsible for overall management of the Bank. The President is selected by
the Board of Executive Directors for a five-year, renewable term.[22]
The
Executive Directors make up the Boards of
Directors of the World Bank. They normally meet
at least twice a week to oversee the Bank's business, including approval of
loans and guarantees, new policies, the administrative budget, country
assistance strategies and borrowing and financial decisions.[23]
The
World Bank also operates a World Bank Institute for training of officials in
development related topics. In total, the World Bank has more than 10,000
employees, spread out over 100 offices around the world and headquartered in
Washington, D.C.[25]
a) Member Countries
The organizations that make
up the World Bank Group are owned by the governments of member nations, which
have the ultimate decision-making power within the organizations on all
matters, including policy, financial or membership issues. Member countries
govern the World Bank Group through the Boards of Governors and the Boards of Executive Directors. These bodies make all major decisions for the organizations.To become a member of the Bank, under the IBRD Articles of Agreement, a country must first join the International Monetary Fund (IMF). Membership in IDA, IFC and MIGA are conditional on membership in IBRD.[26]
b)
Boards of Governors
The Boards of Governors
consist of one Governor and one Alternate Governor appointed by each member
country. The office is usually held by the country's minister of finance,
governor of its central bank, or a senior official of similar rank. The
Governors and Alternates serve for terms of five years and can be reappointed.If the country is a member of the Bank and is also a member of the International Finance Corporation (IFC) or the International Development Association (IDA), then the appointed Governor and his or her alternate serve ex-officio as the Governor and Alternate on the IFC and IDA Boards of Governors. They also serve as representatives of their country on the Administrative Council of the International Center for Settlement of Investment Disputes (ICSID) unless otherwise noted. Multilateral Investment Guarantee Agency (MIGA) Governors and Alternates are appointed separately.[27]
c)
Boards of Directors
The Boards of Directors
consist of the World Bank Group President and 25 Executive Directors. The President is the presiding
officer, and ordinarily has no vote except a deciding vote in case of an equal
division. The Executive Directors select the World Bank President, who is the
Chairman of the Board of Directors.[28]
The World Bank group;
The
World Bank is the name that has come to be used for the International Bank for
Reconstruction and Development (IBRD) founded at Bretton Woods. As the World
Bank expanded beyond its initial scope and purpose of rebuilding Europe after
the Second World War, the World Bank grew through the creation of four
additional organizations. Together, these five financial organizations comprise
the World Bank Group, namely;
1. The International Bank for Reconstruction and Development
(IBRD)
2. The International Development Association (IDA)
3. The International Finance Corporation (IFC)
4. The Multilateral Investment Guarantee Agency (MIGA) and
the
5. International Center for Settlement of Investment
Disputes (ICSID).[29]
These additional members of the World Bank
Group have specific purposes as well. The IDA typically provides interest-free
loans to countries with sovereign guarantees. The IFC provides loans, equity,
risk-management tools, and structured finance. Its goal is to facilitate
sustainable development by improving investments in the private sector. The
MIGA focuses on improving the foreign direct investment of developing
countries. The ICSID provides a means for dispute resolution between
governments and private investors with the end goal of enhancing the flow of
capital.[30]
It is a family of five international organizations that make leveraged loans to developing
countries. It is the largest and most famous development bank in the world and
is an observer at the United Nations
Development Group.[31]
1.
The International Bank for Reconstruction and Development
(IBRD)
The
International Bank for Reconstruction and Development was created in 1944 to
help Europe rebuild after World War II. Today, IBRD provides loans and other
assistance primarily to middle income countries.[32] IBRD
is owned by the governments of its 189 member countries, which are
represented by a 25-member board of 5 appointed and 20 elected Executive Directors.[33]
The
mission statement of the IBRD states that it “aims to reduce poverty in
middle-income and creditworthy poorer countries by promoting sustainable
development, through loans, guarantees, and non-lending-including
analytical and advisory-services.”[34]
The IBRD provides commercial-grade or
concessional financing to sovereign states to fund projects that seek to
improve transportation and infrastructure, education, domestic policy,
environmental consciousness, energy investments, healthcare, access to food and
potable water, and access to improved sanitation.[35]
IBRD
is providing innovative financial solutions, including financial products
(loans, guarantees, and risk management products) and knowledge and advisory
services (including on a reimbursable basis) to governments at both the
national and subnational levels.[36]
IBRD raises most of its funds in the world's
financial markets. In fact, in these markets, IBRD is known simply as the World
Bank. IBRD has maintained a triple-A rating since 1959. Its high credit rating
allows it to borrow at low cost and offer middle-income developing countries
access to capital on favorable terms.[37]
2.
The International Development Association (IDA)
The International Development Association (IDA) is the
part of the World Bank that helps the world’s poorest countries. Established in
1960, IDA aims to reduce poverty by providing loans (called “credits”) and
grants for programs that boost economic growth, reduce inequalities, and
improve people’s living conditions.[38] These
credits are zero-interest loans that have longer payment periods of 35 to 40
years and a grace period of ten years.[39]
These types of loans
are offered to the poorest countries to help them pursue their development
goals, sometimes despite disease and conflict.[40]
In addition to concessional loans and grants,
IDA provides significant levels of debt relief through the Heavily Indebted
Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative
(MDRI).[41]
It is
the single largest provider of funds to economic and human development projects
in the world’s poorest nations.[42] IDA is one of the largest sources of
assistance for the world’s 77 poorest countries, 39 of which are in Africa.[43]
IDA is a multi-issue institution, supporting a range of
development activities, such as primary education, basic health services, clean
water and sanitation, agriculture, business climate improvements,
infrastructure, and institutional reforms.[44]
IDA is overseen by its 173 shareholder countries, which
comprise the Board of Governors. The day-to-day development work of IDA is
managed by Bank operational staff, governments, and implementing agencies.
While IBRD raises most of
its funds on the world’s financial markets, IDA is funded largely by
contributions from the governments of its member countries. Donors meet every
three years to replenish IDA resources and review its policy framework. [45]
3.
The International Finance Corporation (IFC)
The
IFC was established in 1956[46], a member of the World Bank Group, is the largest global development
institution focused exclusively on the private sector in developing countries.[47]
It helps developing countries to achieve sustainable growth by financing
investment, mobilizing capital in international financial markets, and
providing advisory services to businesses and governments.[48]
IFC raises virtually all funds for lending activities through the issuance of debt obligations in international capital markets. IFC issues bonds in a variety of markets and formats, including U.S. dollar benchmarks bonds, themed bonds that support a specific program such as green bonds, and discount notes etc.[51]
Unlike
the grass-roots development efforts pursued by the IBRD and IDA, IFC investment
is often used for projects such as building hotels or power plants, where
finance and trade are more heavily involved. IFC provides private sector
investment, helps companies acquire additional financing in international
markets, and provides technical advice and assistance.[52]
4.
The Multilateral Investment Guarantee Agency (MIGA)
On
April 12, 1988 an international convention established MIGA as the newest
member of the World Bank Group[53]. Its mission is to promote foreign direct investment (FDI)
into developing countries to help support economic growth, reduce poverty, and
improve people's lives...[54]
The typical service offered by MIGA
is political risk insurance, which insulates investors against government
expropriations, consequences of conflict, terrorism, and similar threats. This
allows both investors and lenders to undertake commitments to such projects
without the overwhelming downside risk that would otherwise exist.[55] As a multilateral development agency, MIGA only supports
investments that are developmentally sound and meet high social
and environmental standards.[56]
Membership
in MIGA is offered to all member countries of the World Bank Group, and it is
operated by a Council of Governors,[57] which delegates most of its powers to a Board of Directors.[58]
Since
its inception in 1988, MIGA has issued more than $28 billion in political risk
insurance for projects in
a wide variety of sectors, covering all regions of the world.[59]
Investment that may not have otherwise happened.[60] The
result of all of MIGA's activities is that, with the potential reduction of
risks through insurance, developing countries are encouraged to adopt policies
that promote investment. This combination of reform at the domestic level and
insurance coverage for investors is another important tool in the drive to
reduce poverty by the World Bank Group.[61]
5.
International Center for Settlement of Investment
Disputes (ICSID)
ICSID
is the world’s leading institution devoted to international investment
dispute settlement, and was established in 1966 by the Convention on the
Settlement of Investment Disputes between States and Nationals of Other States
(the ICSID
Convention).[62]
The World
Bank established ICSID to encourage both investors and governments to undertake
and receive “foreign direct investment”
by providing a neutral dispute resolution system.[63]
ICSID
provides for settlement of disputes by conciliation, arbitration or
fact-finding,[64] which are entered into
on a voluntary basis, but once two parties agree to submit issue resolution to
ICSID, they are required to follow ICSID procedures until the verdict is
rendered.[65]
Each case is considered by an
independent Conciliation Commission or Arbitral Tribunal, after hearing
evidence and legal arguments from the parties. A dedicated ICSID case team is
assigned to each case and provides expert assistance throughout the process.[66]
The ICSID Administrative Council is
the governing body of ICSID. Each Member State has one representative on the
Administrative Council, and the President of the World Bank Group is the
Chairman of the Administrative Council. Each State has one vote on the
Administrative Council, and most decisions of the Administrative Council are
taken by a simple majority.[67]
The ICSID Secretariat carries out
the daily operations of ICSID, consists of approximately 70 staff of diverse backgrounds and nationalities and is led by the
Secretary-General, who is the legal representative of ICSID.[68]
Furthermore,
all member countries of ICSID are bound to recognize and enforce the rulings
that are made.[69]
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International Monetary Fund
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World Bank
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Why Is the World
Bank Controversial?
Like the
IMF, the World Bank has been criticized for its part in promoting the Washington Consensus through its close
participation with the IMF in lending only to programs that were heavily
conditioned.[71] The World Bank is often
accused of ignoring the environmental and social impact of projects it
supports. Although the World Bank's loans are intended to help countries, they
also cause those countries to take on debt that they must pay interest on and
remain under the conditions of the institution.[72]
According
to the Encyclopedia of the New American
Nation and the New York Times,
“the
World
Bank has shifted from being a ‘lender of last resort’ to an international
welfare organization, resulting in an institution that is bloated, incompetent,
and even corrupt.[73]
Some critics claim that World Bank
loans give preference to “large infrastructure projects like building dams and
electric plants over projects that would benefit the poor, such as education
and basic health care.”[74]
As
one of the two Bretton Woods Institutions, the World Bank plays a large role in
research, training, and policy formulation. Critics worry that because “the
World Bank and the IMF are regarded as experts in the field of financial
regulation and economic development, their views and prescriptions may
undermine or eliminate alternative perspectives on development.”[75]
The
industrialized countries dominate the World Bank (and IMF) governance
structures. Decisions are typically made and policies implemented by these
leading countries (the G7) because they are the largest donors, some suggest without
sufficient consultation with poor and developing countries.[76]
Conclusion;
The IFIs (international financial
institutions) World Bank and IMF are pillars of globalization. They are designed
to help manage the international financial system, they have taken on major roles
as drivers of closer economic integration of all of the world’s countries, from
the advanced to the least developed.
They have provided funds and advice
to assist countries with their economic development and policy-making. At the
same time, they are criticized on many levels, like, for intrusiveness into the
economic and political sovereignty of
nations dependent on their aid, lack of transparency, and impact of their
policies on societies and the environment.[77]
[1]
E. Mason
& R. Asher, The World Bank Since Bretton Woods 543 (1973) [hereinafter
Bretton
Woods].
[2] Sisters in the Wood A Survey of the IMF and the World Bank
[3] M. Malloy, Public International
Financial Institutions
[4]
Book, the world bank since Bretton woods
[5] http://www.worldbank.org/en/about/what-we-do
[6] https://en.wikipedia.org/wiki/World_Bank#cite_note-3
[8] Book, challenges and opportunities
in international business
[9] http://www.worldbank.org/en/about/archives/history
[10] Book, challenges and opportunities
in international business
[12]
worldbank.org what we do
[13] IBRD
Articles of Agreement (As amended effective February 16, 1989)
[14] Book, challenges and opportunities
in international business
[15]
Ibid,
[16]
worldbank.org what we do
[18]
Ibid,
[19] http://www.bankexamstoday.com/2015
[20] http://www.worldbank.org/en/about/leadership
[21]
Ibid,
[22]
Ibid,
[23]
Ibid,
[24]
Ibid,
[26] http://www.worldbank.org/en/about/leadership/members
[27] http://www.worldbank.org/en/about/leadership/governors
[28] http://www.worldbank.org/en/about/leadership/directors
[30] Book, challenges and opportunities
in international business
[32] www.worldbank.org
[33] Ibid,
[35] Ottenhoff, jenny
(2011). World Bank (Report). Center for Global Development.
[36] www.worldbank.org
[37]
Ibid,
[40]
Ibid,
[42] Building a Better IDA. Center for
Global Development
[44] Ibid,
[45]
Ibid,
[47] http://www.ifc.org
[48] Hess,
Steven; Swahla, Annette; Oosterveld, Bart (2012). Credit Analysis:
international finance corporation (Report). Moody’s investor service
[49] http://www.ifc.org
[50] Ibid,
[51]
Ibid,
[54]
Ibid,
[59]
Ibid,
[61]
Ibid,
[62]
www.icsid.worldbank.org
[64]
www.icsid.worldbank.org
[66]
www.icsid.worldbank.org
[67]
Ibid,
[68]
Ibid,
[71]
Ibid,
[72]
Ibid,
[73]
www.americanforeignrelations.com/E-N/International-Monetary-Fund-and-World-Bank-World-bank-critics-on-the-right-and-left.
[74]
Ibid,
[75] www.brettonwoodsproject.org
[76]
Ibid,
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