Name:World Bank
	Acronym: WB
	Year of foundation: 1945
	Headquarters: Washington D.C., USA
	WB documents:
	WB official website: go to page

Description

The World Bank is an international financial institution with the goal of reducing poverty and supporting development. The Bank, founded in 1945, currently comprises two institutions: the International Bank for Reconstruction and Development (IBRD), aimed at reducing poverty in middle income and creditworthy countries, and the International Development Association (IDA), that focuses exclusively on the world’s poorest countries.

Member states

WB has 187 member states, namely:

History

Introduction

The World Bank is an international financial institution with the goal of reducing poverty and supporting development. The Bank, founded in 1945, currently comprises two institutions: the International Bank for Reconstruction and Development (IBRD), aimed at reducing poverty in middle income and creditworthy countries, and the International Development Association (IDA), that focuses exclusively on the world’s poorest countries.

The creation of the WB: From WWII Reconstruction to Development

The Bretton Woods Institutions, the World Bank, the International Monetary Fund (IMF) and the General Agreement on Tariffs and Trade (GATT), were the result of the United Nations Monetary and Financial Conference that took place in Bretton Woods, New Hampshire, in July 1944. The Bretton Woods Agreements were the result of compromise between two powers, the United States and Great Britain, and addressed these pressing concerns: the dire need for reconstruction across Europe and Asia, the drastic decrease in international trade, and an unstable monetary system. It was determined that reconstruction would become the primary purpose of the International Bank of Reconstruction and Development (IBRD), or World Bank, while the other immediate concerns would become the mandates of the IMF and GATT.

The IBRD, head-quartered in Washington DC, opened its doors on 1946. The first four IBRD loans were issued for reconstruction projects in France, the Netherlands, Denmark, and Luxembourg. However, the United States, through the Marshall Plan, quickly took over the bulk of reconstruction funding for Europe and the Bank thereafter focused on development, starting with South American countries and soon expanding to include newly independent African states and eventually less developed countries (LDCs) in all regions.

It became apparent by the 1950s the Bank was not going to fund just any project nor would it let the project out of their hands completely once the loan money was disbursed. Moreover, a project to be considered for lending had to be deemed necessary and or viable by the Bank’s staff. Creditworthiness and ability to repay loans stood in the way for many LDCs that were newly independent and could not meet requirements set by the Bank, as they could not show positive payment history for loans or did not have a great track record in managing domestic finances.

New Era for World Bank Lending: The International Development Agency (IDA)

The need for softer loans, lower interest loans with longer grace periods, was becoming apparent as developing countries were denied traditional hard IBRD loans due to either sub-standard quality of proposed projects, a lack of creditworthiness, or both. The IBRD had clearly shifted their focus from reconstruction to development in their lending practices, nevertheless LDCs in most need of development assistance were unable to qualify. The original idea behind another entity other than the IBRD filling this much needed role in development originated as early as 1948. However, the IDA opened its doors only in November 1960 and began operations by offering an alternative to countries denied IBRD lending for the purpose of development.

Once the IDA began operations, development-lending patterns shifted to include previously excluded countries and regions. Furthermore, while the first three World Bank presidents supported the early focus on reconstruction, the tenure of both George D. Woods (1963-1968) and Robert S. McNamara (1968-1981) marked a fundamental shift of Bank operations towards a primary focus on less developed countries, many of which benefited from the IDA as an alternative resource for the developing world. By the end of the 1960s, the IDA had increased its relative share of Bank assistance to the developing world.

The 1970s was a decade of change at the Bank. After the 1973 Oil Crisis and end of the Bretton Woods fixed currency monetary system, the Bank began to incorporate conditions, later referred to as structural adjustment, as part of its involvement. Countries were in need of assistance to fulfil their financial obligations and as a result, the Bank started to incorporate economic policy advice along with loans. Early expectations in introducing limited macroeconomic reforms to resolve financial crises were not met and led to the Bank expanding the number and types of reforms included in Bank assistance.

The 1980s marked another major shift in the Bank’s operations as many of the countries that received assistance in the 1970s started to default on loan payments, pushing them into debt crises that often sparked widespread economic crises. Structural adjustment programs (SAPs) also became dominant after being championed by McNamara in 1979 and fully embraced after his departure in 1981. A strategy of shock therapy was adopted based on the assertion that quick implementation of numerous economic policy changes targeting the structure of the recipient country’s economy would lead to a subsequent take-off of the economy. 

WB recent history

WB structure 

As mentioned above, the WB comprises the IBRD and the IDA, lending money to state governments. However, through the years three other institutions were created within the World Bank group, with the purpose of supporting exclusively the private sector development.

The International Finance Corporation (IFC) was the first World Bank Group institution, created in 1956. Its primary mandate is to promote sustainable private-sector development within developing countries. Former Bank President Robert McNamara emphasised the role of the IFC in development after Bank lending to less developing countries increased through the IDA as the Bank committed itself to assisting the poorest countries. In the 1980s, IFC finances became separate from the World Bank and it started issuing its own bonds.

The International Centre for Settlement of Investment Disputes (ICSID) is the smallest World Bank Group institution, formed in 1966 to provide facilities for mediation for disputes between countries and private foreign investors. It is one of the few global dispute settlement mechanisms allowing a private entity be a party to a case against a country, and vice versa.

The Multilateral Investment Guarantee Agency (MIGA) is the newest World Bank Group member, founded in 1988 to offer insurance to foreign investors. MIGA insurance provides investors an opportunity to protect themselves against risks such as armed conflict, breaches of contracts, and problems with currencies, among others. 

Board of Governors

The Board of Governors holds ultimate authority in the Bank’s governance structure, with each member country being represented by a Governor and Alternate Governor. The Board of Governors meets annually and does not manage Bank operations. It also serves the IBRD, IDA, and IFC; MIGA’s Council of Governors is independent from this Board. The Board of Governors has deferred authority of powers not expressly granted to them by the Articles of Agreement to the Executive Directors. The powers expressly granted to them are the following: change the authorised capital stock, admit or suspend members, determine the distribution of Bank income, review financial statements and budgets, and other powers they have not delegated to the Executive Directors. 

Executive Directors and Reporting Unit

The Board of Executive Directors manages the general operations of the Bank, and is continuously in session at the Bank’s Washington DC headquarters. As noted, the Board of Governors grants Executive Directors additional powers not expressly reserved for the Governors in the Articles of Agreement. While the Board of Governors is the ultimate authority, twenty-five resident Executive Directors are responsible for daily Bank activities. In addition, the Executive Directors are given the power to explicitly interpret the Articles of Agreement and formal interpretations are binding for all members. Implicit interpretations also result from the role of Executive Directors in the Bank’s operational activities.

An Independent Evaluation Group (IEG) and Inspection Panel report directly to the Executive Directors. The IEG was established in 1973 and evaluates World Bank, ICF, and MIGA activities. The Inspection Panel was established in 1993 by Executive Directors and investigates the level of compliance of Bank projects with operational policies, including whether any harm to either people or the environment resulted from Bank-funded development projects. In addition, the Executive Directors oversee the selection of an External Auditor to audit the Bank’s financial portfolio and also provides administrative oversight over the Conflict Resolution System. 

President, Managing Directors, Vice Presidents

The World Bank president serves as the chairman of the board of Executive Directors and is the president of all five World Bank institutions. While the president serves as ex officio chairman of the ICSID Administrative Council, he/she has no vote on the council. Internal Audit and Institutional Integrity units report directly to the president. Under the president are three Managing Directors who oversee six regional units, four sectoral units, and additional operational units that are individually run by vice presidents, generally serving under Managing Directors. In addition, there are two Senior Vice president offices for General Counsel and Chief Economist who share equal power with Managing Directors and together serve as senior management.

Decision-making within WB

The World Bank and the IMF have adopted a weighted system of voting. According to IBRID Articles of Agreement, membership in the Bank is open to all members of the IMF. A country applying for membership in the Fund is required to supply data on its economy, which are compared with data from other member countries whose economies are similar in size. A quota is then assigned, equivalent to the country's subscription to the Fund, and this determines its voting power in the Fund. 

Each new member country of the Bank is allotted 250 votes plus one additional vote for each share it holds in the Bank's capital stock. The quota assigned by the Fund is used to determine the number of shares allotted to each new member country of the Bank.

Five Executive Directors are appointed by the members with the five largest numbers of shares (currently the United States, Japan, Germany, France and the United Kingdom). China, the Russian Federation, and Saudi Arabia each elects its own Executive Director. The other Executive Directors are elected by the other members. The voting power distribution differs from agency to agency within the World Bank Group.

Corporate Secretariat is responsible for coordinating the process for members to complete their periodic capital increases in IBRD, IDA, IFC, and MIGA. It provides advice on the procedures for subscribing to additional shares as authorized under resolutions approved by the Board of Governors, including required documentation and capital subscriptions payments.

All the decisions before the Bank are taken by a majority of the votes cast, except as otherwise specifically provided.