Sunday, 17 July 2016

World Bank



    
           
                                                                        World Bank
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]

Although part of the Bank Group, IFC is a separate legal entity with separate Articles of Agreement, share capital, financial structure, management, and staff. Membership in IFC is open only to member countries of the World Bank.[49] The President of the World Bank Group is also President of IFC and it is owned by 184 member countries, a group that collectively determines our policies, through a Board of Governors and a Board of Directors.[50]
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]




International Monetary Fund
  • oversees the international monetary system
  • promotes exchange stability and orderly exchange relations among its member countries
  • assists all members--both industrial and developing countries--that find themselves in temporary balance of payments difficulties by providing short- to medium-term credits
  • supplements the currency reserves of its members through the allocation of SDRs (special drawing rights); to date SDR 21.4 billion has been issued to member countries in proportion to their quotas
  • draws its financial resources principally from the quota subscriptions of its member countries
  • has at its disposal fully paid-in quotas now totaling SDR 145 billion (about $215 billion)
  • has a staff of 2,300 drawn from 182 member countries
World Bank
  • seeks to promote the economic development of the world's poorer countries
  • assists developing countries through long-term financing of development projects and programs
  • provides to the poorest developing countries whose per capita GNP is less than $865 a year special financial assistance through the International Development Association (IDA)
  • encourages private enterprises in developing countries through its affiliate, the International Finance Corporation (IFC)
  • acquires most of its financial resources by borrowing on the international bond market
  • has an authorized capital of $184 billion, of which members pay in about 10 percent
  • has a staff of 7,000 drawn from 180 member countries
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
[7] The IMF and the World Bank How Do They Differ? David D. Driscoll
[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
[11] "About Us". World Bank
[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
[17] The IMF and the World Bank How Do They Differ? David D. Driscoll
[18] Ibid,
[19] http://www.bankexamstoday.com/2015
[20] http://www.worldbank.org/en/about/leadership
[21] Ibid,
[22] Ibid,
[23] Ibid,
[24] Ibid,
[25] http://www.globalization101.org IMF and World Bank
[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
[29] http://www.globalization101.org IMF and World Bank
[30] Book, challenges and opportunities in international business
[32] www.worldbank.org
[33] Ibid,
[34] http://www.globalization101.org IMF and World Bank
[35] Ottenhoff, jenny (2011). World Bank (Report). Center for Global Development.
[36] www.worldbank.org
[37] Ibid,
[39] http://www.globalization101.org IMF and World Bank
[40] Ibid,
[42] Building a Better IDA. Center for Global Development
[44] Ibid,
[45] Ibid,
[46] http://www.globalization101.org IMF and World Bank
[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,
[52] http://www.globalization101.org IMF and World Bank
[54] Ibid, 
[55] http://www.globalization101.org IMF and World Bank
[57] http://www.globalization101.org IMF and World Bank
[59] Ibid,
[60] http://www.globalization101.org IMF and World Bank
[61] Ibid,
[62] www.icsid.worldbank.org
[63] http://www.globalization101.org IMF and World Bank
[64] www.icsid.worldbank.org
[65] http://www.globalization101.org IMF and World Bank
[66] www.icsid.worldbank.org
[67] Ibid,
[68] Ibid,
[69] http://www.globalization101.org IMF and World Bank
[70] The IMF and the World Bank How Do They Differ? David D. Driscoll
[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,
[77] www.globalization101.org IMF and World Bank

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