International Economic Organizations: The World Bank

The World Bank was established in 1944 in the name of the International Bank for Reconstruction and Development (IBRD) to help rebuild Europe and Japan after World War II. The Bank began operations in 1946, it had 38 members. At present this international development organization has members of 187 countries.

The World Bank aims to reduce poverty by lending money to the governments of its poorer members to improve their economies and the standard of living of their people. All the 187 member countries are represented on the board of governors, which meets once a year. The governors are usually their countries’ finance ministers or central bank governors. Although the board of governors has some influence on IBRD policies, actual decision-making power is wielded largely by the bank’s 25 executive directors. Five major countries—the United States, Japan, Germany, the United Kingdom, and France—appoint their executive directors. The other countries are grouped into regions, and each group elects one executive director.

The World Bank Group comprises five constituent institutions: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement. These organisations specialize in different activities. The IBRD provides loans at market rates of interest to middle-income developing countries and creditworthy lower-income countries. The IDA, founded in 1960, provides interest-free long-term loans, technical assistance, and policy advice to low-income developing countries in areas such as health, education, and rural development. Whereas the IBRD raises most of its funds on the world’s capital markets, the IDA’s lending operations are financed through contributions from developed countries. The IFC, operating in partnership with private investors, provides loans, loan guarantees, and equity financing to business undertakings in developing countries. Loan guarantees and insurance to foreign investors against loss caused by noncommercial risks in developing countries are provided by the MIGA. Finally, the ICSID, which operates independently of the IBRD, is responsible for the settlement by conciliation or arbitration of investment disputes between foreign investors and their host developing countries.

The bank obtains its funds from the capital subscriptions of member countries, bond flotation on the world’s capital markets, and net earnings accrued from interest payments on IBRD and IFC loans. Approximately one-tenth of the subscribed capital is paid directly to the bank, with the remainder subject to call if required to meet obligations.

World Bank lends money to middle-income countries at interest rates lower than the rates on loans from commercial banks. In addition, the Bank lends money at no interest to the poorest developing countries, those that often cannot find other sources of loans. Countries that borrow from the Bank also have a much longer period to repay their loans than commercial banks allow and don’t have to start repaying for several years. The Bank lends only a portion of the money needed for a project. The borrowing country must get the rest from other sources or use its funds. Eventually, since the country has to pay-back its loans, it ends up paying for most, if not all, of the project itself.

World Bank loans help countries with the following:

• Supply safe drinking water

• Build schools and train teachers

• Increase agricultural productivity

• Manage forests and other natural resources

• Build and maintain roads, railways, and ports

• Extend telecommunications networks

• Generate and distribute energy

• Expand healthcare

• Modernize

The governors are the ultimate policymakers in the World Bank. They meet once a year at the Bank’s Annual Meetings. At the Annual Meetings, all of the Bank’s and International Monetary Fund’s (IMF) governors decide how best to address global development issues and decide what the world should focus on in the upcoming year (and near future) to help reduce poverty in the world. Although the board of governors has some influence on IBRD policies, actual decision-making power is wielded largely by the bank’s 25 executive directors. Five major countries—the United States, Japan, Germany, the United Kingdom, and France—appoint their executive directors. The other countries are grouped into regions, and each of them elects one executive director. Voting power is based on a country’s capital subscription, which is based in turn on its economic resources. The wealthier and more developed countries constitute the bank’s major shareholders and thus exercise greater power and influence. Currently, the United States exercises nearly one-sixth of the votes in the IBRD, more than double that of Japan, the second largest contributor. Because developing countries hold only a small number of votes, the system does not provide a significant voice for these countries, which are the primary recipients of World Bank loans and policy advice.

The Bank is also one of the world’s largest research centers in development. It has specialized departments that use this knowledge to advise countries in areas like health, education, nutrition, finance, justice, law, and the environment. It also offers training to government and other officials in the world through local research and teaching institutions.

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