World Bank Essay

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The World Bank is not a single institution but a group of five international finance and regulatory bodies that function to provide financial services and advice to governments around the world. While the bank initially was designed to provide reconstruction loans in the wake of WWII, the primary aims of the group today are economic development, poverty reduction, and the protection of the international investment market.

The motto of the World Bank Group is “a dream of a world without poverty,” but historically the goals of the institution were the physical reconstruction of war-devastated countries after World War II. However, by the 1960s these reconstruction efforts were effectively complete and economic development and poverty reduction in poor countries became the primary focus for the Bank’s efforts. Today the mission of the Bank is to improve the living standards of people in the developing world through the provision of long-term loans, grants, and technical assistance designed to help developing countries implement their own poverty reduction strategies. World Bank assistance is evident in everything from broad economic planning to infrastructure development, health and education reforms, and environmental projects.

History and Operational Structure

The initial institution in the World Bank Group was the International Bank for Reconstruction and Development (IBRD) which, along with the International Monetary Fund (IMF), was created during the United Nations (UN) Monetary and Financial Conference which took place on July 1-22, 1944, at Bretton Woods in New Hampshire. The Bank formally came into existence on December 27, 1944, commenced operations on June 25, 1946, and made its first loan ($250 million to France) on May 9, 1947.

The primary function of the bank was intended to be the reconstruction of the physical infrastructure of the world after the devastation of World War II. However, the presence of several Latin American countries among the 44 representatives of the UN ensured that the bank’s mission statement would include language allowing for future economic development. The articles of membership in the IBRD were ratified by 28 countries on December 27, 1945, and since then the membership of the bank has grown to 184 countries. In subsequent years the IBRD was joined by a series of affiliate agencies, the International Finance Corporation (1956), the International Development Association (1960), the International Center for Settlement of Investment Disputes (1966), and the Multilateral Investment Guarantee Agency (1988).

The headquarters of the World Bank Group (WBG) is in Washington, D.C., and the organization maintains field offices in all the countries in which it operates. Each of the five agencies is an independent entity (although they are all part of the UN system) and is owned by the countries that make up its membership. Each country subscribes to the Bank’s basic capital share and while some voting rights are equal for all member countries, others are determined by the financial contribution of the member. Consequently, decisions within the WBG tend to be made by developed countries, while loans and grants are made for projects primarily in developing countries. The primary share holders are the United States (16 percent), Japan (8 percent), Germany, France, and the United Kingdom (4.5 percent each). As any decision requires an 85 percent majority, it is possible for the United States to use veto power to control the decisions of the board.

Each agency in the WBG has different membership, the IBRD is the largest (184 members); and the others have between 140 and 175 members. The group is run by a Board of Directors made up of 24 executive directors representing either a single large country or a group of smaller countries.

By tradition, the president of the World Bank is always a U.S. citizen (while the managing director of the IMF is always a European). Presidents serve for five-year renewable terms. Former Secretary of Defense Robert McNamara was one of the longestserving directors of the World Bank (1968-81) and initiated a major shift in World Bank priorities toward poverty reduction and the support of developing government efforts to regulate and strengthen local markets. The appointment of William Clausen in 1981 shifted the focus once again, toward free market economics and the removal of government protections for developing economies.

Since the 1980s, both the IMF and the World Bank have maintained this focus on opening developing economies to free market forces and many economists contend that this emphasis has increased the rapid and often inappropriate globalization of third world economies and has benefited the governments and industries of the primary world bank shareholders, rather than of the client states. A final shift in World Bank priorities was signaled during the Clinton administration when James Wolfensohn became president and indicated a new emphasis on battling corruption in client state governments.

Current Activities and Projects

In recent years, the World Bank has moved from general economic development and large scale infrastructure projects toward specific poverty reduction efforts and has increased its efforts to support sustainable development, and small local enterprises that are appropriate to the scale of economic activity in the client countries. Examples of recent project approvals include a water supply and sanitation program for low-income communities in Indonesia; an assessment of labor market conditions in Argentina; and a project to rehabilitate the watershed of the Changjiang and Pearl Rivers in China.

After a series of controversial projects in the 1970s and 1980s, the World Bank has set in place a series of Safeguard Policies which require the Bank to assess the environmental, social, economic, and demographic consequences of each project before it can proceed. In addition, there is an independent institution within the bank, the Independent Evaluation Group, which assesses the impacts and effectiveness of projects once they have been completed. The IEG reports directly to the board and is designed to ensure that the World Bank is accountable to its member governments.

Criticisms

One reason for the creation of both the Safeguard Policies and the IEG is long-standing criticism of the World Bank from nongovernmental organizations, member governments, and even from within the institution itself. Early criticisms focused on the lack of environmental and social accountability of bank projects, which, in projects like the Indonesian Transmigration Project of the early 1970s, led to major abuses of both the environment and of local populations. The most frequent recent criticisms however, have emphasized the role of the World Bank in opening up client state economies to the global economy, often to the detriment of local business and governments. These Western-centric practices are often part of “structural adjustment” programs that force free-market liberalization on economies that may not be stable or robust enough to sustain external competition. In addition, such programs often force reductions in public services and increases in external control of the economy. In addition, “structural adjustment” is often undertaken to salvage unpayable loans from developed nations, thereby shifting the burden of risk from the lender to the populations of developing countries. Finally the recent shift to combating corruption in recipient countries has led to a charge that the World Bank has abandoned its traditional non-political stance. However, the bank has countered that reducing corruption is an economic rather than a political goal.

Despite theses criticisms, many of which are valid, the ability of the World Bank to provide belowmarket rate loans to member countries, many of whom do not have access to traditional global capital markets, can be extremely beneficial when the projects are appropriate and carefully monitored.

Bibliography:

  1. Bahram Ghazi, The IMF, the World Bank Group, and the Question of Human Rights (Transnational, 2005);
  2. Amy S. Staples, The Birth of Development: How the World Bank, Food And Agriculture Organization, and World Health Organization Have Changed the World 1945-1965 (Kent State University Press, 2006).

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