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The World Bank is a multilateral development bank that provides low-interest loans and interest-free credits to developing countries. The Bank’s twin goals are to reduce poverty and increase economic growth. It originated in the 1944 Bretton Woods conference with its sister organization, the International Monetary Fund. The Bank raises funds through the sale of bonds on the international market and through donations from member states. Voting is weighted by the size of its member nations’ economies and the United States has the most influence. Since the debt crisis of the 1970s, the Bank has required structural adjustment policy reforms as a condition of its loans. Critics charge that World Bank policies have hurt the most vulnerable and increased poverty.
The World Bank has two components, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD loans funds to creditworthy developing countries that are members of the Bank. This ”hard loan window” has more favorable terms than commercial loans, with a typical loan term of fifteen to twenty years and an initial grace period of three to five years. Its capital comes from sales of its AAA-rated bonds on the world capital market to financial institutions, pension funds, and central banks. The IDA was added in 1960 to accommodate the poorest member nations. The IDA’s ”soft-loan window” provides interest-free loans with a term of 35 to 40 years and a 10-year grace period. It is funded through donations by member nations in replenishment rounds every 3 years.
The World Bank is governed by two boards. The Board of Governors meets once a year with jurisdiction over major policy decisions and admissions to the Bank. Every member nation has a high-level representative on the Board of Governors. The Board of Executive Directors is based at Bank headquarters in Washington, DC, and meets twice weekly as the operational authority. It is headed by the president of the World Bank and has twenty-four members. Voting shares in the Bank are weighted by the size of member nations’ economies. The United States has 16.4 percent of votes and Japan has 7.9 percent. Germany has 4.5 percent of votes while France and the U.K. have 4.3 percent. China, Russia, and Saudi Arabia each have 2.8 percent of votes. By custom, the largest shareholder nominates the president of the Bank who has always been a United States national.
For the first few decades, the World Bank loaned funds primarily for infrastructure improvements such as transportation, dams, and communications. Under Bank president Robert McNamara (1968— 1980), loans focused directly on poverty reduction and basic needs such as food, housing, water, and sanitation, especially in rural areas. When developing countries could not repay their loans during the 1970s debt crisis, the Bank instituted policy reform as a condition of new loans. The structural adjustment packages required borrowers to liberalize trade policies and decrease expenditures on social programs such as housing, health and education. By the 1990s, the Bank’s evaluation units found that structural adjustment policies had resulted in increased inequality, less foreign investment, and particular hardships for the rural landless poor. Under James Wolfensohn (1995—2005), the Bank renewed its focus on reducing poverty with programs such as the Heavily-Indebted Poor Country (HIPC) initiative in 1996. Critics charge that even with these changes, the Bank has not reduced worldwide poverty and that developing nations pay more to wealthy nations in debt payments than they receive in aid.
Bibliography:
- Woods, N. (2006) The Globalizers: The IMF, the World Bank, and Their Borrowers. Cornell University Press, Ithaca, NY.
- World Bank (2007) A Guide to the World Bank, 2nd edn. World Bank, Washington, DC.
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