World Bank

A young World Bank protester takes to the street in Jakarta, Indonesia.

The World Bank Group is a group of five international organizations responsible for providing finance and advice to countries for the purposes of economic development and eliminating poverty. The Bank came into formal existence on December 27, 1945 following international ratification of the Bretton Woods agreements, which emerged from the United Nations Monetary and Financial Conference (July 1 - July 22, 1944). Commencing operations on June 25, 1946, it approved its first loan on May 9, 1947 ($250m to France for postwar reconstruction, in real terms the largest loan issued by the Bank to date). Following decolonization, many African countries were ruled by dictators. Some corrupt dictators are alleged to have stolen much of the financial support lent by the World Bank, International Monetary Fund, and other lenders, suggesting a lack of oversight by the World Bank and leaving a legacy of enormous national debt in these recipient nations.

However, World Bank standards and methods such as transparent procedures for competitive procurement and environmental standards for project evaluation are highly valued by some, and have been adopted successfully in some areas. By convention, the United States nominates the head of the World Bank as the biggest donor, while the Europeans nominate the head of the IMF. This arrangement is criticized by many as a mechanism that allows the US to exercise undue influence. The appointment in June 2005 of Paul Wolfowitz as the Bank's 10th President created controversy because in his previous role within the Bush administration as deputy defense secretary he had been a leading advocate of the invasion of Iraq, which many countries that benefit from the Bank oppose. He resigned May 17 2007 following an investigation into his handling of a promotion for his girl-friend. Rumors, however, circulate that his resignation was engineered by people who were implicated by his campaign against corruption within the Bank . Nobel Peace Prize winner Muhammad Yunus has also criticized the Bank for "all but ignoring tiny loans for impoverished people" although the Bank claims to be "committed to microcredit" .

Areas of Focus

The World Bank's activities are focused on developing countries, in the fields of human development (education, health), agriculture and rural development (irrigation, rural services), environmental protection (pollution reduction, establishing and enforcing regulations), infrastructure (roads, urban regeneration, electricity), and good governance (anti-corruption, legal institutions development). The IBRD and IDA provide loans at preferential rates to member countries, as well as grants to the poorest countries. Loans or grants for specific projects are often linked to wider policy changes in the sector or the economy. For example, a loan to improve coastal environmental management may be linked to development of new environmental institutions at national and local levels and to implementation of new regulations to limit pollution.

The activities of the International Finance Corporation and Multilateral Investment Guarantee Agency include investment in the private sector and providing insurance.

The World Bank Institute is the capacity development branch of the World Bank, which provides training and other capacity building programs to member countries.

Organizational Structure

Five affiliated agencies created between 1956 and 1988 make up the World Bank Group. The Group's headquarters are in Washington, D.C. It is an international organization owned by member governments. It makes a profit, but the profit is used to support continued efforts in poverty reduction.

Technically, the World Bank is part of the United Nations system, but its governance structure is different. Each institution in the World Bank Group is owned by its member governments, which subscribe to its basic share capital, with votes proportional to shares held. Membership gives certain voting rights that are the same for all countries but there are additional votes which depend on financial contributions to the organization.

As of November 1, 2006 the United States held 16.4 percent of total votes, Japan 7.9 percent, Germany 4.5 percent, and the United Kingdom and France each held 4.3 percent. As major decisions require an 85 percent super-majority, the U.S. can block any such major change.

World Bank Group Agencies

The Five World Bank Group agencies are:

• The International Bank for Reconstruction and Development (IBRD), established in 1945, which provides debt financing on the basis of sovereign guarantees.
• The International Finance Corporation (IFC), established in 1956, which provides various forms of financing without sovereign guarantees, primarily to the private sector.
• The International Development Association (IDA), established in 1960, which provides concessional financing (interest-free loans or grants), usually with sovereign guarantees.
• The Multilateral Investment Guarantee Agency (MIGA), established in 1988, which provides insurance against certain types of risk, including political risk, primarily to the private sector.
• The International Centre for Settlement of Investment Disputes (ICSID), established in 1966, which works with governments to reduce investment risk.

The term "World Bank" generally refers to the IBRD and IDA , whereas the World Bank Group is used to refer to the five agencies collectively.

Governments can choose which of these agencies to join as members. The IBRD has 185 member governments, and the other institutions have between 140 and 176 members. The institutions of the World Bank Group are all run by a Board of Governors that meet once a year. Each member country appoints a governor, generally its Minister of Finance.

The World Bank Group's day to day operations are run by a Board of 24 Executive Directors to whom the governors have delegated certain powers. Each Director represents either one country (for the largest countries), or a group of countries. Executive Directors are appointed by their respective governments or the constituencies. The agencies of the World Bank are each governed by their Articles of Agreement that serve as the legal and institutional foundation for all of their work . The Bank also serves as one of several Implementing Agencies for the UN Global Environment Facility (GEF).

Presidency

By convention, the Bank President has always been nominated by the U.S. President and is a US citizen. By the same convention, the Managing Director of the IMF has been a European. Although nominated by the US Government, the World Bank President is subject to confirmation by the Board of Governors. The World Bank President serves a term of five years, which may be renewed.

The World Bank Group was recently headed by Paul Wolfowitz. He was appointed on June 1, 2005 but was forced to resign on May 17, 2007. Wolfowitz, a former United States Deputy Secretary of Defense, was nominated by George W. Bush to replace James D. Wolfensohn. It came to light that Wolfowitz had used his influence to transfer his girlfriend out of the World Bank to the State Department for a significantly higher income job. The controversy surrounding this decision and other criticism about his aloof leadership style brought him down.

On May 30, 2007, U.S. President George W. Bush nominated Robert Zoellick to be the next President of the World Bank. Zoellick is a former U.S. Trade Representative and former U.S. Deputy Secretary of State. At the time of his nomination, he was an executive with Goldman Sachs. The nomination is subject to approval by the World Bank Board of Directors.

List of Presidents

• Eugene Meyer (June 1946–December 1946)
• John J. McCloy (March 1947–June 1949)
• Eugene R. Black (1949–1963)
• George D. Woods (January 1963–March 1968)
• Robert S. McNamara (April 1968–June 1981)
• Alden W. Clausen (July 1981-June 1986)
• Barber Conable (July 1986-August 1991)
• Lewis T. Preston (September 1991–May 1995)
• James Wolfensohn (May 1995–June 2005)
• Paul Wolfowitz (June 2005-May 2007)

List of Chief Economists

• Anne Krueger - 1982-1986
• Stanley Fischer - 1988-1990
• Lawrence Summers - 1991-1993
• Joseph E. Stiglitz - 1997–2000
• Nicholas Stern - 2000–2003
• François Bourguignon - 2003-current

List of World Bank Directors-General of Evaluation

• Christopher Willoughby, Successively Unit Chief, Division Chief, and Department Director for Operations Evaluation - 1970–1976
• Mervyn L. Weiner, First Director-General, Operations Evaluation - 1975–1984
• Yves Rovani, Director-General, Operations Evaluation - 1986–1992
• Robert Picciotto, Director-General, Operations Evaluation - 1992–2002
• Gregory K. Ingram, Director-General, Operations Evaluation - 2002–2005
• Vinod Thomas Director-General, Evaluation - 2005-current

Criticism

The World Bank has long been criticized by a range of nongovernmental organizations and academics, notably including its former Chief Economist Joseph Stiglitz, who is equally critical of the International Monetary Fund, the US Treasury Department, and US and other developed country trade negotiators. The Bank's own internal evaluations have drawn negative conclusions. Critics argue that the so-called free market reform policies — which the Bank advocates in many cases — are often harmful to economic development if implemented badly, too quickly ("shock therapy (economics)"), in the wrong sequence, or in very weak, uncompetitive economies. In Russia, for example, some have suggested that it was an apparent shock therapy policy that has significantly raised the number of people living in poverty from 2 million to 60 million, a 3000 percent increase.

Following decolonization, many African countries were ruled by dictators. Some corrupt dictators are alleged to have stolen much of the financial support lent by the World Bank, IMF, and other lenders, suggesting a lack of oversight by the World Bank and leaving a legacy of enormous national debt in these recipient nations.

However, World Bank standards and methods such as transparent procedures for competitive procurement and environmental standards for project evaluation are highly valued by some, and have been adopted successfully in some areas.

Although relied upon by poor countries as a contributor of development finance, the World Bank is often criticized, primarily by opponents of corporate "neo-colonial" globalization. These advocates of alter-globalization fault the bank for what they believe are policies and procedures that undermine national sovereignty of recipient countries.

A related accusation is that the Bank operates under essentially "neo-liberal" principles. In this perspective, reforms born of "neo-liberal" inspiration are not always suitable for nations experiencing conflicts (ethnic wars, border conflicts, etc.), or that are long-oppressed (dictatorship or colonialism) and do not have stable, democratic political systems.

There is suspicion in some circles that the Bank is under the marked political influence of certain countries (notably, the United States) that would profit from advancing their interests. Those who hold this view suspect the World Bank would favor the installation of foreign enterprises, to the detriment of the development of the local economy and the people living in that country.

In her book Masters of Illusion: The World Bank and the Poverty of Nations (1996), author Catherine Caufield makes a sharp criticism of the assumptions and structure of the World Bank operation, arguing that it harms southern nations rather than promoting them. Caufield criticizes the highly homogenized and Western recipes of “development” held by the Bank. Caufield takes the stand that, to the World Bank, different nations and regions are indistinguishable, and ready to receive the “uniform remedy of development.” The danger of this assumption is that to attain even small portions of success, western approaches to life are adopted and traditional economic structures and values are abandoned. Caufield presents a second assumption held by the World Bank, that poor countries cannot modernize without money and advice from abroad. She suggests that this generates a cycle of indebtedness that with the payment of interest means a huge net transfer from the poor to the rich nations each year.

Caufield criticizes two elements in the structure of the World Bank. First, the structure of repayment; the Bank is a lender of foreign currency and demands to be repaid in the same currency. The borrower countries, in order to obtain the currencies to repay the loans, must sell to the rich countries more than they buy from them. However, the rich countries want to be net exporters, not importers. This generates “the transfer problem,” often the only way of repaying loans is to engage in other loans, resulting in an accumulation of debts. Second, she criticizes the high influence of the bank over national sovereignty. As a condition of the credit, the Bank offers advice on how countries should manage their finances, make their laws, provide services, and conduct themselves in the international market. The Bank has great power of persuasion, because if it decides to ostracize a borrower, other major international powers will follow the lead. On top of this, by excessive lending, the Bank has added to its own power and depleted that of its borrowers, generating a blatant inconsistency with its stated mission.

Defenders of the World Bank contend that no country is forced to borrow its money. The Bank provides both loans and grants. Even the loans are concessional since they are given to countries that have no access to international capital markets. Furthermore, the loans, both to poor and middle-income countries, are at below market-value interest rates. The World Bank argues that it can help development more through loans than grants, because money repaid on the loans can then be lent for other projects.

AIDS Controversy

In debates about the World Bank's role, the arguments are complex and often rely as much upon political judgment as economic proof. For example, in the 2005 Massey Lecture, entitled "Race Against Time," Stephen Lewis argued that the structural adjustment policies of the World Bank and the International Monetary Fund have aggravated and aided the spread of the AIDS pandemic by limiting the funding allowed to health and education sectors. However, it should also be noted that, although finances hardly help stop the spread of the AIDS pandemic, the World Bank is a major source of funding for combating AIDS in poor countries, and in the past six years it has committed about US$ 2 billion through grants, loans and credits for programs to fight HIV/AIDS.

Evaluation at the World Bank

Social and environmental concerns

Throughout the period from 1972 to 1989, the Bank did not conduct its own environmental assessments and did not require assessments for every project that was proposed. Assessments were required only for a varying, small percentage of projects, with the environmental staff, in the early 1970s, sending check-off forms to the borrowers and, in the latter part of the period, sending more detailed documentation and suggestions for analysis.

During this same period, the Bank’s failure to adequately consider social environmental factors was most evident in the 1976 Indonesian Transmigration program (Transmigration V). This project was funded after the establishment of the Bank’s OESA (environmental) office in 1971. According to the Bank critic Le Prestre, Transmigration V was the “largest resettlement program ever attempted… designed ultimately to transfer, over a period of twenty years, 65 million of the nation’s 165 million inhabitants from the overcrowded islands of Java, Bali, Madura, and Lombok…” (175). The objectives were: relief of the economic and social problems of the inner islands, reduction of unemployment on Java, relocation of manpower to the outer islands, the “strengthen[ing of] national unity through ethnic integration, and improve[ment of] the living standard of the poor” (ibid, 175).

Putting aside the possibly Machiavellian politics of such a project, it otherwise failed as the new settlements went out of control. Local populations fought with the migrators and the tropical forest was devastated (destroying the lives of indigenous peoples). Also, “[s]ome settlements were established in inhospitable sites, and failures were common;” these concerns were noted by the Bank's environmental unit whose recommendations (to Bank management) and analyses were ignored (Le Prestre, 176). Funding continued through 1987, despite the problems noted and despite the Bank’s published stipulations (1982) concerning the treatment of groups to be resettled.

More recent authors have pointed out that the World Bank learned from the mistakes of projects such as Transmigration V and greatly improved its social and environmental controls, especially during the 1990s. It has established a set of "Safeguard Policies" that set out wide ranging basic criteria that projects must meet to be acceptable. The policies are demanding, and as Mallaby (reference below) observes: "Because of the combined pressures from Northern NGOs and shareholders, the Bank's project managers labor under "safeguard" rules covering ten sensitive issues … no other development lender is hamstrung in this way" (page 389). The ten policies cover: Environmental Assessment, Natural Habitats, Forests, Pest Management, Cultural Property, Involuntary Resettlement, Indigenous Peoples, Safety of Dams, Disputed Areas, and International Waterways [9].

The Independent Evaluation Group

The Independent Evaluation Group (IEG) (formerly known as the Operations Evaluation Department (OED)) plays an important check and balance role in the World Bank. Similar in its role to the US Government's Government Accountability Office (GAO), it is an independent unit of the World Bank that reports evaluation findings directly to the Bank's Board of Executive Directors. IEG evaluations provide an objective basis for assessing the results of the Bank's work, and ensuring accountability of World Bank management to the member countries (through the World Bank Board) in the achievement of its objectives.

Extractive Industries Review

After longstanding criticisms from civil society of the Bank's involvement in the oil, gas, mining, and chemicals sectors, the World Bank launched an independent review in July 2001 called the Extractive Industries Review (EIR - not to be confused with Environmental Impact Report). The review was headed by Dr. Emil Salim (former Environment Minister of Indonesia). Dr. Salim held consultations with a wide range of stakeholders in 2002 and 2003. The EIR recommendations were published in January 2004 in a final report entitled "Striking a Better Balance." . The report concluded that fossil fuel and mining projects do not alleviate poverty, and recommended that World Bank involvement with these sectors be phased out by 2008 to be replaced by investment in renewable energy and clean energy. The World Bank published its Management Response to the EIR in September 2004 [10] following extensive discussions with the Board of Directors. The Management Response did not accept many of the EIR report's conclusions. However, the EIR served to alter the World Bank's policies on oil, gas and mining in important ways, as has been documented by the World Bank in a recent follow-up report One area of particular controversy concerned the rights of indigenous peoples. Critics point out that the Management Response weakened a key recommendation that indigenous peoples and affected communities should have to provide 'consent' for projects to proceed - instead, there would be 'consultation'. Following the EIR process, the World Bank issued a revised Policy on Indigenous Peoples

Impact evaluations

In recent years there has been an increased focus on measuring results of World Bank development assistance through impact evaluations. An impact evaluation assesses the changes in the well-being of individuals that can be attributed to a particular project, program or policy. Impact evaluations demand a substantial amount of information, time and resources. Therefore, it is important to select carefully the public actions that will be evaluated. One of the important considerations that could govern the selection of interventions (whether they be projects, programs or policies) for impact evaluation is the potential of evaluation results for learning. In general, it is best to evaluate interventions that maximize the possibility of learning from current poverty reduction efforts and provide insights for midcourse correction, as necessary.

Other Information

The World Bank provides summer internships to local DC students at its headquarters every year. This youth development program is a large investment in the city's youth and the World Bank partners with a local nonprofit, Urban Alliance Foundation, to provide this opportunity.

References

ISBN links support NWE through referral fees

• Bello, Walden, et al. Dark Victory. NY: Pluto Press, 1999. ISBN 074531466X
• Caufield, Catherine. Masters of Illusion. NY: Henry Holt & Company, 1997. ISBN 0330353217
• Dreher, Alex. "The Development and Implementation of IMF and World Bank Conditionality." Hamburg: Institute of International Economics, HWWA Discussion Paper 165. 2002. ISSN 1616-4814 [11] The Development and Implementation of IMF and World Bank Conditionality. retrieved 22 June 2007
• Easterly, William. The Elusive Quest for Growth. Cambridge, MA: MIT Press, 2001. ISBN 0262550423
• Le Prestre, Phillipe. The World Bank and the Environmental Challenge. Selinsgrove: Susquehanna University Press, 1989. ISBN 0941664988
• Mallaby, Sebastian. The World's Banker: a story of failed states, financial crises, and the wealth and poverty of nations. London: Penguin Press, 2004. ISBN 1594200238
• McClure, Paul. A Guide to the World Bank. NY: World Bank Publications, 2003. ISBN 0821353446
• McClellan, Elizabeth P. The World Bank: Overview and Current Issues. NY: Nova Science Publishers, 2003. ISBN 1590335503
• Rich, Bruce. Mortgaging the Earth. Boston, MA: Beacon Press, 1994. ISBN 080704704X
• Stiglitz, Joseph. Globalization and its Discontents. NY: W W Norton, 2002. ISBN 9780393051247
• Stiglitz, Joseph. Making Globalization Work. NY: W W Norton, 2006. ISBN 9780393061222
• Stiglitz, Joseph. The Roaring Nineties. NY: W. W. Norton, 2003. ISBN 9780393058529
• Young, Zoe. A New Green Order? The World Bank and the Politics of the Global Environment Facility. NY: Pluto Press, 2002 ISBN 0745315534

External links

All links retrieved May 17, 2023.

• World Bank (website)
• Eldis resources on the World Bank and IMF
• The Bank Information Center

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