NARU

Introduction to IMF

HIREN
Functions of IMF
Role of IMF

BIYANI
Facilities given by IMF

KASHISH
Critical evaluation of IMF
IMF & Greece case study

NAVIN
Introduction to World Bank
Functions of World Bank

MEHUL
Benefits to India from World Bank & its subsidiaries.

ATIT
Critical Evaluation of World Bank
World Bank Subsidiaries:
IDA

ROHAN
IFC
ADB
MIGA
About the IMF

The International Monetary Fund (IMF) is an organization of 187 countries, working to foster
global monetary cooperation, secure financial stability, facilitate international trade, promote
high employment and sustainable economic growth, and reduce poverty around the world.

History
Cooperation and reconstruction (1944–71)
During the Great Depression of the 1930s, countries attempted to shore up their failing
economies by sharply raising barriers to foreign trade, devaluing their currencies to compete
against each other for export markets, and curtailing their citizens' freedom to hold foreign
exchange. These attempts proved to be self-defeating. World trade declined sharply (see chart
below), and employment and living standards plummeted in many countries.

This breakdown in international monetary cooperation led the IMF's founders to plan an
institution charged with overseeing the international monetary system—the system of exchange
rates and international payments that enables countries and their citizens to buy goods and
services from each other. The new global entity would ensure exchange rate stability and
encourage its member countries to eliminate exchange restrictions that hindered trade.

The Bretton Woods agreement

The IMF was conceived in July 1944, when representatives of 45 countries meeting in the town
of Bretton Woods, New Hampshire, in the northeastern United States, agreed on a framework for
international economic cooperation, to be established after the Second World War. They
believed that such a framework was necessary to avoid a repetition of the disastrous economic
policies that had contributed to the Great Depression.
The IMF came into formal existence in December 1945, when its first 29 member countries
signed its Articles of Agreement. It began operations on March 1, 1947. Later that year, France
became the first country to borrow from the IMF.

The IMF's membership began to expand in the late 1950s and during the 1960s as many African
countries became independent and applied for membership. But the Cold War limited the Fund's
membership, with most countries in the Soviet sphere of influence not joining.

Par value system

The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates
(the value of their currencies in terms of the U.S. dollar and, in the case of the United States, the
value of the dollar in terms of gold) pegged at rates that could be adjusted only to correct a
"fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement.
This par value system—also known as the Bretton Woods system—prevailed until 1971, when
the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other
governments) into gold.

The end of the Bretton Woods System (1972–

81)
By the early 1960s, the U.S. dollar's fixed value against gold, under the Bretton Woods system of
fixed exchange rates, was seen as overvalued. A sizable increase in domestic spending on
President Lyndon Johnson's Great Society programs and a rise in military spending caused by
the Vietnam War gradually worsened the overvaluation of the dollar.

End of Bretton Woods system

The system dissolved between 1968 and 1973. In August 1971, U.S. President Richard Nixon
announced the "temporary" suspension of the dollar's convertibility into gold. While the dollar
had struggled throughout most of the 1960s within the parity established at Bretton Woods, this
crisis marked the breakdown of the system. An attempt to revive the fixed exchange rates failed,
and by March 1973 the major currencies began to float against each other.

Since the collapse of the Bretton Woods system, IMF members have been free to choose any
form of exchange arrangement they wish (except pegging their currency to gold): allowing the
currency to float freely, pegging it to another currency or a basket of currencies, adopting the
currency of another country, participating in a currency bloc, or forming part of a monetary
union.

Oil shocks

Many feared that the collapse of the Bretton Woods system would bring the period of rapid
growth to an end. In fact, the transition to floating exchange rates was relatively smooth, and it
was certainly timely: flexible exchange rates made it easier for economies to adjust to more
expensive oil, when the price suddenly started going up in October 1973. Floating rates have
facilitated adjustments to external shocks ever since.

The IMF responded to the challenges created by the oil price shocks of the 1970s by adapting its
lending instruments. To help oil importers deal with anticipated current account deficits and
inflation in the face of higher oil prices, it set up the first of two oil facilities.

Helping poor countries

From the mid-1970s, the IMF sought to respond to the balance of payments difficulties
confronting many of the world's poorest countries by providing concessional financing through
what was known as the Trust Fund. In March 1986, the IMF created a new concessional loan
program called the Structural Adjustment Facility. The SAF was succeeded by the Enhanced
Structural Adjustment Facility in December 1987.

Debt and painful reforms (1982–89)

The oil shocks of the 1970s, which forced many oil-importing countries to borrow from
commercial banks, and the interest rate increases in industrial countries trying to control inflation
led to an international debt crisis.

During the 1970s, Western commercial banks lent billions of "recycled" petrodollars, getting
deposits from oil exporters and lending those resources to oil-importing and developing
countries, usually at variable, or floating, interest rates. So when interest rates began to soar in
1979, the floating rates on developing countries' loans also shot up. Higher interest payments are
estimated to have cost the non-oil-producing developing countries at least $22 billion during
1978–81. At the same time, the price of commodities from developing countries slumped
because of the recession brought about by monetary policies. Many times, the response by
developing countries to those shocks included expansionary fiscal policies and overvalued
exchange rates, sustained by further massive borrowings.

When a crisis broke out in Mexico in 1982, the IMF coordinated the global response, even
engaging the commercial banks. It realized that nobody would benefit if country after country
failed to repay its debts.

The IMF's initiatives calmed the initial panic and defused its explosive potential. But a long road
of painful reform in the debtor countries, and additional cooperative global measures, would be
necessary to eliminate the problem.

Societal Change for Eastern Europe and

Asian Upheaval (1990-2004)
The fall of the Berlin wall in 1989 and the dissolution of the Soviet Union in 1991 enabled the
IMF to become a (nearly) universal institution. In three years, membership increased from 152
countries to 172, the most rapid increase since the influx of African members in the 1960s.

In order to fulfill its new responsibilities, the IMF's staff expanded by nearly 30 percent in six
years. The Executive Board increased from 22 seats to 24 to accommodate Directors from Russia
and Switzerland, and some existing Directors saw their constituencies expand by several
countries.

The IMF played a central role in helping the countries of the former Soviet bloc transition from
central planning to market-driven economies. This kind of economic transformation had never
before been attempted, and sometimes the process was less than smooth. For most of the 1990s,
these countries worked closely with the IMF, benefiting from its policy advice, technical
assistance, and financial support.

By the end of the decade, most economies in transition had successfully graduated to market
economy status after several years of intense reforms, with many joining the European Union in
2004.

Asian Financial Crisis

In 1997, a wave of financial crises swept over East Asia, from Thailand to Indonesia to Korea
and beyond. Almost every affected country asked the IMF for both financial assistance and for
help in reforming economic policies. Conflicts arose on how best to cope with the crisis, and the
IMF came under criticism that was more intense and widespread than at any other time in its
history.

From this experience, the IMF drew several lessons that would alter its responses to future
events. First, it realized that it would have to pay much more attention to weaknesses in
countries’ banking sectors and to the effects of those weaknesses on macroeconomic stability. In
1999, the IMF—together with the World Bank—launched the Financial Sector Assessment
Program and began conducting national assessments on a voluntary basis. Second, the Fund
realized that the institutional prerequisites for successful liberalization of international capital
flows were more daunting than it had previously thought. Along with the economics profession
generally, the IMF dampened its enthusiasm for capital account liberalization. Third, the severity
of the contraction in economic activity that accompanied the Asian crisis necessitated a re-
evaluation of how fiscal policy should be adjusted when a crisis was precipitated by a sudden
stop in financial inflows.

Debt relief for poor countries

During the 1990s, the IMF worked closely with the World Bank to alleviate the debt burdens of
poor countries. The Initiative for Heavily Indebted Poor Countries was launched in 1996, with
the aim of ensuring that no poor country faces a debt burden it cannot manage. In 2005, to help
accelerate progress toward the United Nations Millennium Development Goals (MDGs), the
HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative (MDRI).
Globalization and the Crisis (2005 - present)
The IMF has been on the front lines of lending to countries to help boost the global economy as
it suffers from a deep crisis not seen since the Great Depression.

For most of the first decade of the 21st century, international capital flows fueled a global
expansion that enabled many countries to repay money they had borrowed from the IMF and
other official creditors and to accumulate foreign exchange reserves.

The global economic crisis that began with the collapse of mortgage lending in the United States
in 2007, and spread around the world in 2008 was preceded by large imbalances in global capital
flows.

Global capital flows fluctuated between 2 and 6 percent of world GDP during 1980-95, but since
then they have risen to 15 percent of GDP. In 2006, they totaled $7.2 trillion—more than a
tripling since 1995. The most rapid increase has been experienced by advanced economies, but
emerging markets and developing countries have also become more financially integrated.

The founders of the Bretton Woods system had taken it for granted that private capital flows
would never again resume the prominent role they had in the nineteenth and early twentieth
centuries, and the IMF had traditionally lent to members facing current account difficulties.

The latest global crisis uncovered a fragility in the advanced financial markets that soon led to
the worst global downturn since the Great Depression. Suddenly, the IMF was inundated with
requests for stand-by arrangements and other forms of financial and policy support.

The international community recognized that the IMF’s financial resources were as important as
ever and were likely to be stretched thin before the crisis was over. With broad support from
creditor countries, the Fund’s lending capacity was tripled to around $750 billion. To use those
funds effectively, the IMF overhauled its lending policies, including by creating a flexible credit
line for countries with strong economic fundamentals and a track record of successful policy
implementation. Other reforms, including ones tailored to help low-income countries, enabled
the IMF to disburse very large sums quickly, based on the needs of borrowing countries and not
tightly constrained by quotas, as in the past.

For more on the ideas that have shaped the IMF from its inception until the late 1990s, take a
look at James Boughton's "The IMF and the Force of History: Ten Events and Ten Ideas that
Have Shaped the Institution."

Overview
The IMF works to foster global growth and economic stability. It provides policy advice and
financing to members in economic difficulties and also works with developing nations to help
them achieve macroeconomic stability and reduce poverty.

With its near-global membership of 187 countries, the IMF is uniquely placed to help member
governments take advantage of the opportunities—and manage the challenges—posed by
globalization and economic development more generally. The IMF tracks global economic
trends and performance, alerts its member countries when it sees problems on the horizon,
provides a forum for policy dialogue, and passes on know-how to governments on how to tackle
economic difficulties.

The IMF provides policy advice and financing to members in economic difficulties and also
works with developing nations to help them achieve macroeconomic stability and reduce
poverty.

Marked by massive movements of capital and abrupt shifts in comparative advantage,

globalization affects countries' policy choices in many areas, including labor, trade, and tax
policies. Helping a country benefit from globalization while avoiding potential downsides is an
important task for the IMF. The global economic crisis has highlighted just how interconnected
countries have become in today’s world economy.

Key IMF activities

The IMF supports its membership by providing

• policy advice to governments and central banks based on analysis of

economic trends and cross-country experiences;
• research, statistics, forecasts, and analysis based on tracking of global,
regional, and individual economies and markets;
• loans to help countries overcome economic difficulties;
• concessional loans to help fight poverty in developing countries; and
• technical assistance and training to help countries improve the management
of their economies.

Original aims

The IMF was founded more than 60 years ago toward the end of World War II (see History). The
founders aimed to build a framework for economic cooperation that would avoid a repetition of
the disastrous economic policies that had contributed to the Great Depression of the 1930s and
the global conflict that followed.

Since then the world has changed dramatically, bringing extensive prosperity and lifting millions
out of poverty, especially in Asia. In many ways the IMF's main purpose—to provide the global
public good of financial stability—is the same today as it was when the organization was
established. More specifically, the IMF continues to

• provide a forum for cooperation on international monetary problems

 • facilitate the growth of international trade, thus promoting job creation,
economic growth, and poverty reduction;
• promote exchange rate stability and an open system of international
payments; and
• lend countries foreign exchange when needed, on a temporary basis and
under adequate safeguards, to help them address balance of payments
problems.

The IMF's way of operating has changed over the years and has undergone rapid change since
the beginning of the 1990s as it has sought to adapt to the changing needs of its expanding
membership in an globalized world economy. Most recently, the IMF's Managing Director,
Dominique Strauss-Kahn, has launched an ambitious reform agenda, aimed at making sure the
IMF continues to deliver the economic analysis and multilateral consultation that is at the core of
its mission—ensuring the stability of the global monetary system.

An adapting IMF

With cross-border financial flows increasing sharply in recent decades, the interdependence of
countries has deepened (see slideshow on capital inflows). The turbulence in advanced economy
credit markets in 2007-08 has demonstrated that domestic and international financial stability
cannot be taken for granted, even in the world's wealthiest countries. The spike in food and fuel
prices, which has hit import-dependent poor and middle-income countries particularly hard, is
another aspect of the globalized economy we all are part of.

In response, the IMF has rethought its operations in several ways:

• Enhancing IMF lending facilities. The IMF has upgraded its lending
facilities to enable it to better serve its members. It has created a new Short-
Term Liquidity Facility designed to help emerging market countries with a
track record of sound policies address fallout from the current financial crisis.
To make its financial support more flexible and tailored to the diversity of
low-income countries, it has established a new Poverty Reduction and Growth
Trust, which has three new lending windows. As part of a wide-ranging reform
of its lending practices, the IMF has also redefined the way it engages with
countries on issues related to structural reform of the economy. (See
Lending).
• Strengthening the monitoring of global, regional, and country
economies. The IMF has taken several steps to improve economic and
financial surveillance, which is its framework for providing advice to member
countries on macroeconomic policies (see Our Work). It is emphasizing
research into the links between the financial sector and the real economy and
the sharing of cross-country experiences. It has published new guidance on
how to analyze and advise on exchange rates, and is paying more attention
to the impact of the world's most important economies on other countries'
economies. And it is improving its ability to warn member countries of risks
and vulnerabilities in their economies.
• Helping resolve global economic imbalances. The IMF's analysis of
global economic developments, contained in its World Economic Outlook,
provide finance ministers and central bank governors with a common
 framework for discussing the global economy. The IMF now also has the
ability to call for multilateral consultations to discuss specific problems facing
the global economy with a select group of countries—an innovative way of
facilitating collective action among key players in the global economy. The
first such consultation took place in 2006. It sought to reduce global
payments imbalances and involved China, the euro area, Japan, Saudi Arabia,
and the United States (see Tackling Current Challenges).
• Analyzing capital market developments.The IMF is devoting more
resources to the analysis of global financial markets and their linkages with
macroeconomic policy. Twice a year, it publishes the Global Financial
Stability Report, which provides up-to-date analysis of developments in global
financial markets. IMF staff also work with member countries to help them
identify potential risks to financial stability, including through the Financial
Sector Assessment Program (described in more detail below). The IMF also
offers training to country officials on how to manage their financial systems,
monetary and exchange regimes, and capital markets. The IMF is currently
facilitating the drafting of voluntary guidelines for Sovereign Wealth Funds
and works closely with the Financial Stability Board to promote international
financial stability.
• Assessing financial sector vulnerabilities.Resilient, well-regulated
financial systems are essential for macroeconomic stability in a world of ever-
growing capital flows. The IMF and the World Bank jointly run the Financial
Sector Assessment Program, aimed at alerting countries to vulnerabilities and
risks in their financial sectors. IMF and World Bank staff also advise on how to
strengthen oversight and supervision of banks and other financial institutions.
• Working to cut poverty. At present, more than a billion people are living
on less than $1 a day, and more than three-quarters of a billion people are
malnourished. The IMF's role in low-income countries is changing as these
countries grow and mature. But its central goal remains the same: to help
promote economic stability and growth, laying the ground work for deep and
lasting poverty reduction. Its current main priority is to help low- and middle-
income countries cope with the adverse effects of the global economic crisis.
To that effect, it is stepping up lending to low-income countries to combat the
impact of the global recession.
• Improving IMF governance. In May 2008, the IMF's membership approved
a two-year package of reforms to improve representation of members at the
Fund. For the IMF to be fully effective in its role, it must be perceived as
representing all countries in a fair manner. With that in mind, governance
reform is being accelerated to ensure a decision-making structure that
reflects current global realities. The IMF is also becoming leaner and more
efficient. It is trimming expenditures and reorganizing the way it earns
revenue to pay for its operations (See Governance).
• Greater accountability and transparency. The IMF publishes almost all of
its annual economic health checks of member countries, updates about its
lending programs, and a wealth of other information on its website. The IMF's
performance is assessed on a regular basis by an Independent Evaluation
Office.
The IMF's main goal is to ensure the stability of the international monetary and financial system.
It helps resolve crises, and works with its member countries to promote growth and alleviate
poverty. It has three main tools at its disposal to carry out its mandate: surveillance, technical
assistance and training, and lending. These functions are underpinned by the IMF's research and
statistics.

Surveillance

The IMF promotes economic stability and global growth by encouraging countries to adopt
sound economic and financial policies. To do this, it regularly monitors global, regional, and
national economic developments. It also seeks to assess the impact of the policies of individual
countries on other economies.

This process of monitoring and discussing countries’ economic and financial policies is known
as bilateral surveillance. On a regular basis—usually once each year—the IMF conducts in depth
appraisals of each member country's economic situation. It discusses with the country's
authorities the policies that are most conducive to a stable and prosperous economy. Consistent
with the decision on bilateral surveillance adopted in June 2007, the main focus of the
discussions is whether there are risks to the economy’s domestic and external stability that would
argue for adjustments in economic or financial policies.

Member countries may agree to publish the IMF's assessment of their economies, with the vast
majority of countries opting to do so.

The IMF also has the option to bring together, on an as-needed basis, groups of systemically
relevant economies to address issues of broad importance to the global economy. These meetings
are called multilateral consultations. A consultation on how to reduce global imbalances took
place in 2006-07.

The IMF's work on individual countries informs its work on regional economies and the global
economy. These views, along with timely analysis of important economic and financial issues,
are published twice a year in the World Economic Outlook, various Regional Economic Outlook
reports, and the Global Financial Stability Report.

The IMF works with the World Bank to promote resilient financial systems around the world
through the joint Financial Sector Assessment Program (FSAP). Supported by experts from a
range of national agencies and standard-setting bodies, IMF and World Bank staff assess the
stability of a country’s financial system by identifying its strengths and vulnerabilities, determine
how key sources of risks are being managed, ascertain the sector's developmental needs, and help
prioritize policy responses.

For more information on how the IMF monitors economies, go to Surveillance in the Our Work
section.
Technical assistance and training

IMF offers technical assistance and training to help member countries strengthen their capacity
to design and implement effective policies. Technical assistance is offered in several areas,
including fiscal policy, monetary and exchange rate policies, banking and financial system
supervision and regulation, and statistics.

The IMF provides technical assistance and training mainly in four areas:

• Monetary and financial policies (monetary policy instruments, banking system

supervision and restructuring, foreign management and operations, clearing settlement
systems for payments, and structural development of central banks)
• Fiscal policy and management (tax and customs policies and administration, budget
formulation, expenditure management, design of social safety nets, and management of
domestic and foreign debt)
• Compilation, management, dissemination, and improvement of statistical data
• Economic and financial legislation.

For more on technical assistance, go to Technical Assistance in the Our Work section or read an
Issues Brief on the subject.

Lending

In the event that member countries experience difficulties financing their balance of payments,
the IMF is also a fund that can be tapped to facilitate recovery. A policy program supported by
financing is designed by the national authorities in close cooperation with the IMF. Continued
financial support is conditional on the effective implementation of this program.

The IMF also provides low-income countries with loans at a concessional interest rate through
the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF).
For more on different types of IMF lending, go to Lending in the Our Work section.

Research and data

Supporting all three of these activities is the IMF's economic and financial research and statistics.
In recent years, the IMF has applied both its surveillance and technical assistance work to the
development of standards and codes of good practice in its areas of responsibility, and to the
strengthening of financial sectors. These are part of the IMF's continuing efforts to strengthen the
international financial system and improve its ability to prevent and resolve crises.

Membership
The IMF currently has a near-global membership of 187 countries. To become a member, a
country must apply and then be accepted by a majority of the existing members. In June 2009,
the former Yugoslav republic of Kosovo joined the IMF, becoming the institution's 186th
member.

Upon joining, each member of the IMF is assigned a quota, based broadly on its relative size in
the world economy. The IMF's membership agreed in May 2008 on a rebalancing of its quota
system to reflect the changing global economic realities, especially the increased weight of
major emerging markets in the global economy. For more on the quota and voice reform, please
go to the section on Country Representation in the Governance section).

A member's quota delineates basic aspects of its financial and organizational relationship with
the IMF, including:

Subscriptions. A member's quota subscription determines the maximum amount of financial

resources the member is obliged to provide to the IMF. A member must pay its subscription in
full upon joining the IMF: up to 25 percent must be paid in the IMF's own currency, called
Special Drawing Rights (SDRs) or widely accepted currencies (such as the dollar, the euro, the
yen, or pound sterling), while the rest is paid in the member's own currency.

Voting power. The quota largely determines a member's voting power in IMF decisions. Each
IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of quota.
Accordingly, the United States has 371,743 votes (16.77 percent of the total), and Palau has 281
votes (0.01 percent of the total). The newly agreed quota and voice reform will result in a
significant shift in the representation of dynamic economies, many of which are emerging market
countries, through a quota increase for 54 member countries. A tripling of the number of basic
votes is also envisaged as a means to give poorer countries a greater say in running the
institution.

Access to financing. The amount of financing a member can obtain from the IMF (its access
limit) is based on its quota. Under Stand-By and Extended Arrangements, which are types of
loans, a member can borrow up to 200 percent of its quota annually and 600 percent
cumulatively. However, access may be higher in exceptional circumstances.

SDR allocations. Allocations of SDRs, the IMF's unit of account, is used as an international
reserve asset. A member's share of general SDR allocations is established in proportion to its
quota. The most recent general allocation of SDRs took place in 2009.

Collaborating with others

The IMF collaborates with the World Bank, the regional development banks, the World Trade
Organization (WTO), UN agencies, and other international bodies. While all of these
organizations are involved in global economic issues, each has its own unique areas of
responsibility and specialization. The IMF also interacts with think tanks, civil society, and the
media on a daily basis.

Working with the World Bank

The IMF and the World Bank are different, but complement each other's work. Whereas the
IMF's focus is chiefly on macroeconomic and financial sector issues, the World Bank is
concerned mainly with longer-term development and poverty reduction. Its loans finance
infrastructure projects, the reform of particular sectors of the economy, and broader structural
reforms. Countries must join the IMF to be eligible for World Bank membership.

Given the World Bank's focus on antipoverty issues, the IMF collaborates closely with the Bank
in the area of poverty reduction and helping countries draw up poverty reduction strategies.
Other areas of collaboration include assessments of member countries' financial sectors,
development of standards and codes, and improvement of the quality, availability, and coverage
of data on external debt.

An external review committee on World Bank and IMF collaboration was formed in March 2006
to assess the working relationship between the two sister agencies, known collectively as the
Bretton Woods institutions. In its February 2007 report, the six-member Malan committee
offered recommendations for closer collaboration between the two institutions. This led to the
institutions’ adoption of a Joint Management Action Plan, under which, IMF and World Bank
country teams discuss their country-level work programs, the division of labor, and the work
needed from each insititution in the coming year. Also the Bank and Fund have improved their
information sharing at the country level, including technical assistance reports.

Cooperating with other international organizations

The IMF is a member of the Switzerland-based Financial Stability Board, which brings together
government officials responsible for financial stability in the major international financial
centers, international regulatory and supervisory bodies, committees of central bank experts, and
international financial institutions. It also works with standard-setting bodies such as the Basel
Committee on Banking Supervision and the International Association of Insurance Supervisors.

The IMF collaborates with the World Trade Organization (WTO) both formally and informally.
The IMF has observer status at WTO meetings and IMF staff contribute to the work of the WTO
Working Group on Trade, Debt, and Finance. And the IMF is involved in the WTO-led
Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries,
whose other members are the International Trade Commission, UNCTAD, UNDP, and the
World Bank.

The IMF has a Special Representative to the United Nations, located at the UN Headquarters in
New York. The Special Representative facilitates the liaison between the IMF and the UN
system. The general arrangements for collaboration and consultations between the IMF and the
UN include areas of mutual interest, such as cooperation between the statistical services of the
two organizations, and reciprocal attendance and participation at events.

Our Work
The IMF's fundamental mission is to help ensure stability in the international
system. It does so in three ways: keeping track of the global economy and the
economies of member countries; lending to countries with balance of payments
difficulties; and giving practical help to members.

Surveillance
When a country joins the IMF, it agrees to subject its economic and financial policies to the
scrutiny of the international community. It also makes a commitment to pursue policies that are
conducive to orderly economic growth and reasonable price stability, to avoid manipulating
exchange rates for unfair competitive advantage, and to provide the IMF with data about its
economy. The IMF's regular monitoring of economies and associated provision of policy advice
is intended to identify weaknesses that are causing or could lead to financial or economic
instability. This process is known as surveillance.

Country surveillance

Country surveillance is an ongoing process that culminates in regular (usually annual)

comprehensive consultations with individual member countries, with discussions in between as
needed. The consultations are known as "Article IV consultations" because they are required by
Article IV of the IMF's Articles of Agreement. During an Article IV consultation, an IMF team
of economists visits a country to assess economic and financial developments and discuss the
country's economic and financial policies with government and central bank officials. IMF staff
missions also often meet with parliamentarians and representatives of business, labor unions, and
civil society.

The team reports its findings to IMF management and then presents them for discussion to the
Executive Board, which represents all of the IMF's member countries. A summary of the Board's
views is subsequently transmitted to the country's government. In this way, the views of the
global community and the lessons of international experience are brought to bear on national
policies. Summaries of most discussions are released in Public Information Notices and are
posted on the IMF's web site, as are most of the country reports prepared by the staff.

In June 2007 the IMF's Executive Board adopted a comprehensive policy statement on
surveillance. The 2007 Decision on Bilateral Surveillance over Member's Policies, complements
Article IV of the IMF’s Articles of Agreement and introduces the concept of external stability as
an organizing principle for bilateral surveillance. This means that the main focus of the
discussions between the IMF and country officials is whether there are risks to the economy’s
domestic and external stability that would call for adjustments to that country’s economic or
financial policies.

Regional surveillance

Regional surveillance involves examination by the IMF of policies pursued under currency
unions—i ncluding the euro area, the West African Economic and Monetary Union, the Central
African Economic and Monetary Community, and the Eastern Caribbean Currency Union.
Regional economic outlook reports are also prepared to discuss economic developments and key
policy issues in Asia Pacific, Europe, Middle East and Central Asia, Sub-Saharan Africa, and the
Western Hemisphere.

Global surveillance

Global surveillance entails reviews by the IMF's Executive Board of global economic trends and
developments. The main reviews are based on the World Economic Outlook reports and the
Global Financial Stability Report, which covers developments, prospects, and policy issues in
international financial markets. Both reports are published twice a year, with updates being
provided on a quarterly basis. In addition, the Executive Board holds more frequent informal
discussions on world economic and market developments.

The IMF also has the option of holding multilateral consultations, involving smaller groups of
countries , to foster debate and develop policy actions designed to address problems of global or
regional importance. In 2006, multilateral consultations brought together China, euro area
countries, Japan, Saudi Arabia, and the United States to discuss global economic imbalances.

Technical Assistance
The IMF shares its expertise with member countries by providing technical assistance and
training in a wide range of areas, such as central banking, monetary and exchange rate policy, tax
policy and administration, and official statistics. The objective is to help improve the design and
implementation of members' economic policies, including by strengthening skills in institutions
such as finance ministries, central banks, and statistical agencies. The IMF has also given advice
to countries that have had to reestablish government institutions following severe civil unrest or
war.

In 2008, the IMF embarked on an ambitious reform effort to enhance the impact of its technical
assistance. The reforms emphasize better prioritization, enhanced performance measurement,
more transparent costing and stronger partnerships with donors.

Beneficiaries of technical assistance

Technical assistance is one of the IMF's core activities. It is concentrated in critical areas of
macroeconomic policy where the Fund has the greatest comparative advantage. Thanks to its
near-universal membership, the IMF's technical assistance program is informed by experience
and knowledge gained across diverse regions and countries at different levels of development.

About 80 percent of the IMF's technical assistance goes to low- and lower-middle-income
countries, in particular in sub-Saharan Africa and Asia. Post-conflict countries are major
beneficiaries. The IMF is also providing technical assistance aimed at strengthening the
architecture of the international financial system, building capacity to design and implement
poverty-reducing and growth programs, and helping heavily indebted poor countries (HIPC) in
debt reduction and management.
Types of technical assistance

The IMF's technical assistance takes different forms, according to needs, ranging from long-term
hands-on capacity building to short-notice policy support in a financial crisis. Technical
assistance is delivered in a variety of ways. IMF staff may visit member countries to advise
government and central bank officials on specific issues, or the IMF may provide resident
specialists on a short- or a long-term basis. Technical assistance is integrated with country
reform agendas as well as the IMF's surveillance and lending operations.

The IMF is providing an increasing part of its technical assistance through regional centers
located in Gabon, Mali, and Tanzania for Africa; in Barbados for the Caribbean; in Lebanon for
the Middle East; and in Fiji for the Pacific Islands. As part of its reform program, the IMF is
planning to open four more regional technical assistance centers in Africa, Latin America, and
central Asia. The IMF also offers training courses for government and central bank officials of
member countries at its headquarters in Washington, D.C., and at regional training centers in
Austria, Brazil, China, India, Singapore, Tunisia, and the United Arab Emirates.

Partnership with donors

Contributions from bilateral and multilateral donors are playing an increasingly important role in
enabling the IMF to meet country needs in this area, now financing about two thirds of the IMF's
field delivery of technical assistance. Strong partnerships between recipient countries and donors
enable IMF technical assistance to be developed on the basis of a more inclusive dialogue and
within the context of a coherent development framework. The benefits of donor contributions
thus go beyond the financial aspect.

The IMF is currently seeking to leverage the comparative advantages of its technical assistance
to expand donor financing to meet the needs of recipient countries. As part of this effort, the
Fund is strengthening its partnerships with donors by engaging them on a broader, longer-term
and more strategic basis.

The idea is to pool donor resources in multi-donor trust funds that would supplement the IMF's
own resources for technical assistance while leveraging the Fund's expertise and experience.
Expansion of the multi-donor trust fund model is envisaged on a regional and topical basis,
offering donors different entry points according to their priorities. The IMF is planning to
establish a menu of seven topical trust funds over the next two years, covering anti-money
laundering/combating the financing of terrorism; fragile states; public financial management;
management of natural resource wealth, public debt sustainability and management, statistics
and data provision; and financial sector stability and development.

Lending by the IMF

A country in severe financial trouble, unable to pay its international bills, poses potential
problems for the international financial system, which the IMF was created to protect. Any
member country, whether rich, middle-income, or poor, can turn to the IMF for financing if it
has a balance of payments need—that is, if it cannot find sufficient financing on affordable terms
in the capital markets to make its international payments and maintain a safe level of reserves.

IMF loans are meant to help member countries tackle balance of payments problems, stabilize
their economies, and restore sustainable economic growth. The IMF is not a development bank
and, unlike the World Bank and other development agencies, it does not finance projects.

The changing nature of lending

About four out of five member countries have used IMF credit at least once. But the amount of
loans outstanding and the number of borrowers have fluctuated significantly over time.

In the first two decades of the IMF's existence, more than half of its lending went to industrial
countries. But since the late 1970s, these countries have been able to meet their financing needs
in the capital markets.

The oil shock of the 1970s and the debt crisis of the 1980s led many lower- and lower-middle-
income countries to borrow from the IMF.

In the 1990s, the transition process in central and eastern Europe and the crises in emerging
market economies led to a further increase in the demand for IMF resources.

In 2004, benign economic conditions worldwide meant that many countries began to repay their
loans to the IMF. As a consequence, the demand for the Fund’s resources dropped off sharply
(see chart below).
But in 2008, the IMF began making loans again to countries hit by the financial crisis and high
food and fuel prices. In late 2008 and early 2009 the IMF lent $60 billion to emerging markets
affected by the crisis.

While the financial crisis has sparked renewed demand for IMF financing, the decline in lending
that preceded the financial crisis also reflected a need to adapt the IMF's lending instruments to
the changing needs of member countries. In response, the IMF conducted a wide-ranging review
of its lending facilities and terms on which it provides loans.

In March 2009, the Fund announced a major overhaul of its lending framework, including
modernizing conditionality, introducing a new flexible credit line, enhancing the flexibility of the
Fund’s regular stand-by lending arrangement, doubling access limits on loans, adapting its cost
structures for high-access and precautionary lending, and streamlining instruments that were
seldom used. It has also speeded up lending procedures and redesigned its Exogenous Shocks
Facility to make it easier to access for low-income countries.

Three main purposes of lending

Article I of the IMF's Articles of Agreement states that the purpose of lending by the IMF is "...to
give confidence to members by making the general resources of the Fund temporarily available
to them under adequate safeguards, thus providing them with opportunity to correct
maladjustments in their balance of payments without resorting to measures destructive of
national or international prosperity."

In practice, the purpose of the IMF's lending has changed dramatically since the organization
was created. Over time, the IMF's financial assistance has evolved from helping countries deal
with short-term trade fluctuations to supporting adjustment and addressing a wide range of
balance of payments problems resulting from terms of trade shocks, natural disasters, post-
conflict situations, broad economic transition, poverty reduction and economic development,
sovereign debt restructuring, and confidence-driven banking and currency crises.

Today, IMF lending serves three main purposes.

First, it can smooth adjustment to various shocks, helping a member country avoid disruptive
economic adjustment or sovereign default, something that would be extremely costly, both for
the country itself and possibly for other countries through economic and financial ripple effects
(known as contagion).

Second, IMF programs can help unlock other financing, acting as a catalyst for other lenders.
This is because the program can serve as a signal that the country has adopted sound policies,
reinforcing policy credibility and increasing investors' confidence.

Third, IMF lending can help prevent crisis. The experience is clear: capital account crises
typically inflict substantial costs on countries themselves and on other countries through
contagion. The best way to deal with capital account problems is to nip them in the bud before
they develop into a full-blown crisis.

Conditions for lending

When a member country approaches the IMF for financing, it may be in or near a state of
economic crisis, with its currency under attack in foreign exchange markets and its international
reserves depleted, economic activity stagnant or falling, and a large number of firms and
households going bankrupt.

The IMF aims to ensure that conditions linked to IMF loan disbursements are focused and
adequately tailored to the varying strengths of members' policies and fundamentals. To this end,
the IMF discusses with the country the economic policies that may be expected to address the
problems most effectively. The IMF and the government agree on a program of policies aimed at
achieving specific, quantified goals in support of the overall objectives of the authorities'
economic program. For example, the country may commit to fiscal or foreign exchange reserve
targets.

The IMF discusses with the country the economic policies that may be expected to address the
problems most effectively. The IMF and the government agree on a program of policies aimed at
achieving specific, quantified goals in support of the overall objectives of the authorities'
economic program. For example, the country may commit to fiscal or foreign exchange reserve
targets.

Loans are typically disbursed in a number of installments over the life of the program, with each
installment conditional on targets being met. Programs typically last up to 3 years, depending on
the nature of the country's problems, but can be followed by another program if needed. The
government outlines the details of its economic program in a "letter of intent" to the Managing
Director of the IMF. Such letters may be revised if circumstances change.

For countries in crisis, IMF loans usually provide only a small portion of the resources needed to
finance their balance of payments. But IMF loans also signal that a country's economic policies
are on the right track, which reassures investors and the official community, helping countries
find additional financing from other sources.

Main lending facilities

The Stand-By Arrangement is a key lending facility established in 1952. Although its use has
been declining in recent years, it has remained the most popular facility for middle-income
countries that seek financial assistance. Under its structure, financing is provided in support of
adjustment to a balance of payments need and disbursed in tranches based on conditions spelled
out in the program. The IMF's largest loans have traditionally been provided under SBAs.

The IMF has introduced a new Flexible Credit Line (FCL) for countries with very strong
fundamentals, policies, and track record of policy implementation. Once approved according to
pre-set qualification criteria, countries can tap all resources available under the credit line at any
time, as disbursements would not be phased and conditioned on compliance with a traditional
Fund-supported program. This is justified by the very strong track records of countries that
qualify to the FCL, which give confidence that their economic policies will remain strong or that
corrective measures will be taken in the face of shocks.

The establishment of the FCL represents a significant shift in delivering Fund financial
assistance. The FCL's flexibility includes:

• Assuring qualified countries of automatic and upfront access to Fund resources with no
ongoing (ex post) conditions;
• Lack of restrictions in renewing the credit line, which at the country’s discretion could be
for either a six-month period, or a 12-month period with a review of eligibility after six
months;
• Longer repayment period (3¼ to 5 years).

The Extended Fund Facility is used to help countries address balance of payments difficulties
related partly to structural problems that may take longer to correct than macroeconomic
imbalances. A program supported by an extended arrangement usually includes measures to
improve the way markets and institutions function, such as tax and financial sector reforms,
privatization of public enterprises, and steps to make labor markets more flexible.
The IMF also provides Emergency Assistance to countries coping with balance of payments
problems caused by natural disasters or military conflicts. The interest rates are subsidized for
low-income countries.

The Trade Integration Mechanism allows the IMF to provide loans under one of its facilities to a
developing country whose balance of payments is suffering because of multilateral trade
liberalization, either because its export earnings decline when it loses preferential access to
certain markets or because prices for food imports go up when agricultural subsidies are
eliminated.

Lending to low-income countries

Low-income countries can borrow from the IMF at a very low, or concessional, interest rate.
They can use the Poverty Reduction and Growth Facility, which is the main vehicle by which the
IMF provides financial support to countries' poverty-reduction strategies. The facility's core
objectives are to promote sustainable balance of payments positions and to foster sustainable
growth, leading to higher living standards and a reduction in poverty. In recent years, the largest
number of IMF loans has been made through the PRGF.

Member countries can also access the Exogenous Shocks Facility, which helps deal with
economic shocks, such as food and fuel price hikes or a natural disaster, that are beyond the
control of a government but have a significant negative impacts on the economies.

The interest rate levied on PRGF and ESF loans is only 0.5 percent, and loans are to be repaid
over a period of 5½-10 years.

Several low-income countries have made significant progress in recent years toward economic
stability and no longer require IMF financial assistance. But many of these countries still seek
the IMF's advice, and the monitoring and endorsement of their economic policies that comes
with it. To help these countries, the IMF has created a program for policy support and signaling,
called the Policy Support Instrument.

Debt relief

In addition to concessional loans, some low-income countries are also eligible for debts to be
written off under two key initiatives.

The Heavily Indebted Poor Countries (HIPC) Initiative, introduced in 1996 and enhanced in
1999, whereby creditors provide debt relief, in a coordinated manner, with a view to restoring
debt sustainability; and

The Multilateral Debt Relief Initiative (MDRI), under which the IMF, the International
Development Association (IDA) of the World Bank, and the African Development Fund (AfDF)
canceled 100 percent of their debt claims on certain countries to help them advance toward the
Millennium Development Goals.
Role of IMF

The International Monetary Fund is a global organisation founded in 1944. It aims was to help
stabilise exchange rates and provide loans to countries in need. Nearly all members of the United
Nations are members of the IMF with a few exceptions such as Cuba, Lichtenstein and Andorra.

• The IMF is independent of the World Bank although both are United Nations
agencies and both are aiming to increase living standards. The World Bank
concentrates on long term loans to developing countries.
• Helps to stabilize exchange rate
• IMF is independent of the world bank.
• Its aim is to increase standard of living of people.
•

Functions of IMF

1. International Monetary Cooperation

2. Promote exchange Rate stability
3. To help deal with Balance of Payments adjustment
4. Help Deal With Economic Crisis by providing international coordination

Disadvantages
Decisions about which countries may borrow money are made by rich countries.
Poor countries have little say about loans and the conditions attached to them.

The IMF will only lend money to countries if they agree to certain conditions. These
conditions increase poverty.

The livelihoods of people in poorer countries are destroyed by unfair competition

from foreign goods and services.

The IMF does not give good financial advice. Countries have suffered by following it.

Mostly powers is in the hands of rich countries.

IMF provides hard conditions in providing loans

Conditions imposed results in increase in poverty & low per capita income.

CRITICISM OF IMF
The IMF plays an important role in trying to alleviate and stabilise financial crisis.
However, its role has come under intense scrutiny and it has been criticised for
variety of reasons and from a range of different sources. These are some of the
main criticisms of the IMF:
1. Exacerbates Economic Problems. It is argued that the conditions of IMF loans
cause more harm than good. In the Asian Crisis of 1997, many criticise the IMF's
insistence on deflationary fiscal policy (Spending cuts and tax rises) and higher
interest rates. It is argued the IMF turned a minor financial crisis into a major
economic recession with unemployment rates in countries like Thailand, Indonesia
and Malaysia shooting up. Chief economist of the World Bank, Joseph Stiglitz, was
particularly scathing in the IMF's insistence on high interest rates as Thailand
entered recession. (IMF criticised)

2. One Size Fits All. The IMF frequently argues for the same economic policies
regardless of the situation. For example, devaluation of the exchange rate may help
many countries, but, it doesn't mean that this is always the solution. Policies of
privatisation and deregulation may work better in developed countries in the West,
but, maybe more difficult to implement in the developing world.

3. Decline in Public Services Arguably the insistence on Spending cuts (fiscal

responsibility) lead to decline in public services. One report suggests the IMF
spending cuts are responsible for a resurgence of health problems amongst
countries which received aid. (IMF linked to higher tuberculosis rates) (IMF linked to
Cholera). The IMF is frequently criticised for ignoring the impact of its policies on the
poor, concentrating only on macro economic data

3. Takes away political autonomy. Countries such as Jamaica, argue that the
IMF take away the ability for countries to decide national policy. Instead they have
to follow the economic dictates of an unelected body, with a perspective skewed by
free market ideology and the interests of the developed world.

4. Moral Hazard. The IMF has also been criticised by free market economists
arguing that they do to much. They argue that intervention creates moral hazard
(encourages countries to be reckless because they can rely on IMF loans) The
intervention is often based on poor information and fails to deal with the economic
problems. It is argued that rather than the IMF, countries should take personal
responsibility.

I have to say there are many more criticisms of the IMF than this. The IMF have
been criticised for just about everything from supporting right wing dictatorships,
facilitating corruption (e.g. Kenya in the 1980s) to encouraging the destruction of
the environment and the culture of indigenous people.

IMF - Saint or Sinner?

The reality is something in between. At times they have appeared rather inflexible
insisting on fiscal responsibility and privatisation at a time which might not be
helpful for the economy. The criticism of exacerbating the Asian crisis has a strong
argument.

But, at the same time, it must be remembered, people call on the IMF in times of
crisis. When you have a balance of payments crisis, depreciating exchange rate,
there is no easy painless fix. Whatever the IMF recommend people would use it as a
convenient point of blame. It is hardly surprising governments do blame an external
body like the IMF, it helps to deflect criticism from the government and why the
economy ended up needing a bailout.

This does not mean that the IMF are blameless, far from it. They have made many
mistakes and errors of policy. But, they have been criticised for both doing too
much and also doing too little. They have accused of being free market ideologues
but also have been accused of interfering too much with free market mechanisms.

The problem the IMF face at the moment, is that they simply don't have the
necessary funds to bailout the amount of debt in emerging economies. The
President of Pakistan has complained that the current response of the IMF has been
tardy and too slow (link) It may require greater intervention from member states
such as the US, gulf states and the European Union. If the intervention is carefully
managed, then short term loans may mitigate some of the worst effects of the
current financial crisis.

WORLD BANK
About Us
The World Bank is a vital source of financial and technical assistance to developing countries around the world. Our
mission is to fight poverty with passion and professionalism for lasting results and to help people help themselves and
their environment by providing resources, sharing knowledge, building capacity and forging partnerships in the public
and private sectors.

We are not a bank in the common sense; we are made up of two unique development institutions owned by 187
member countries: the International Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA).

Each institution plays a different but collaborative role in advancing the vision of inclusive and sustainable
globalization. The IBRD aims to reduce poverty in middle-income and creditworthy poorer countries, while IDA
focuses on the world's poorest countries.

Their work is complemented by that of the International Finance Corporation (IFC), Multilateral Investment Guarantee
Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID).

Together, we provide low-interest loans, interest-free credits and grants to developing countries for a wide array of
purposes that include investments in education, health, public administration, infrastructure, financial and private
sector development, agriculture and environmental and natural resource management.

The World Bank, established in 1944, is headquartered in Washington, D.C. We have more than 10,000 employees
in more than 100 offices worldwide.

Innovating from Within

To ensure countries continue to have access to the best global expertise and cutting-edge knowledge, the World
Bank Group is revising its programs to assist the poor, as well as its range of financing options, to meet pressing
development priorities.

The three pillars of these efforts:

• Results: Together, we are continuing to sharpen our focus on helping developing countries deliver
measurable results.
• Reform: New reforms at the World Bank Group are aimed at improving every aspect of our work: the way
projects are designed (investment lending), how information is made available (access to information), and how our
staff are deployed to best assist governments and communities (decentralization).
• Resources: Together, we have embarked on a campaign to secure a capital increase in 2010 -- to ensure
member countries continue to have a strong financial partner that can meet the challenges of an ever-evolving
world.

Criteria

Many achievements have brought the MDG targets for 2015 within reach in some cases. For the
goals to be realized, six criteria must be met: stronger and more inclusive growth in Africa and
fragile states, more effort in health and education, integration of the development and
environment agendas, more and better aid, movement on trade negotiations, and stronger and
more focused support from multilateral institutions like the World Bank.

1. Eradicate Extreme Poverty and Hunger: From 1990 through 2004, the
proportion of people living in extreme poverty fell from almost a third to less
than a fifth. Although results vary widely within regions and countries, the
trend indicates that the world as a whole can meet the goal of halving the
percentage of people living in poverty. Africa's poverty, however, is expected
to rise, and most of the 36 countries where 90% of the world's
undernourished children live are in Africa. Less than a quarter of countries
are on track for achieving the goal of halving under-nutrition.
2. Achieve Universal Primary Education: The number of children in school in
developing countries increased from 80% in 1991 to 88% in 2005. Still, about
72 million children of primary school age, 57% of them girls, were not being
educated as of 2005.
3. Promote Gender Equality and Empower Women: The tide is turning
slowly for women in the labor market, yet far more women than men-
worldwide more than 60% - are contributing but unpaid family workers. The
World Bank Group Gender Action Plan was created to advance women's
economic empowerment and promote shared growth.
4. Reduce Child Mortality: There is some improvement in survival rates
globally; accelerated improvements are needed most urgently in South Asia
and Sub-Saharan Africa. An estimated 10 million-plus children under five died
in 2005; most of their deaths were from preventable causes.
5. Improve Maternal Health: Almost all of the half million women who die
during pregnancy or childbirth every year live in Sub-Saharan Africa and Asia.
 There are numerous causes of maternal death that require a variety of health
care interventions to be made widely accessible.
6. Combat HIV/AIDS, Malaria, and Other Diseases: Annual numbers of new
HIV infections and AIDS deaths have fallen, but the number of people living
with HIV continues to grow. In the eight worst-hit southern African countries,
prevalence is above 15 percent. Treatment has increased globally, but still
meets only 30 percent of needs (with wide variations across countries). AIDS
remains the leading cause of death in Sub-Saharan Africa (1.6 million deaths
in 2007). There are 300 to 500 million cases of malaria each year, leading to
more than 1 million deaths. Nearly all the cases and more than 95 percent of
the deaths occur in Sub-Saharan Africa.
7. Ensure Environmental Sustainability: Deforestation remains a critical
problem, particularly in regions of biological diversity, which continues to
decline. Greenhouse gas emissions are increasing faster than energy
technology advancement.
8. Develop a Global Partnership for Development: Donor countries have
renewed their commitment. Donors have to fulfill their pledges to match the
current rate of core program development. Emphasis is being placed on the
Bank Group's collaboration with multilateral and local partners to quicken
progress toward the MDGs' realization.

Criticism

The World Bank has long been criticized by non-governmental organizations, such as the
indigenous rights group Survival International, and academics, including its former Chief
Economist Joseph Stiglitz who is equally critical of the International Monetary Fund, the US
Treasury Department, US and other developed country trade negotiators.[26] Critics argue that the
so-called free market reform policies which the Bank advocates are often harmful to economic
development if implemented badly, too quickly ("shock therapy"), in the wrong sequence or in
weak, uncompetitive economies.[26][27]

In Masters of Illusion: The World Bank and the Poverty of Nations (1996), Catherine Caufield
argued that the assumptions and structure of the World Bank harms southern nations. Caufield
criticized its formulaic recipes of "development". To the World Bank, different nations and
regions are indistinguishable and ready to receive the "uniform remedy of development". She
argued that to attain even modest success, Western practices are adopted and traditional
economic structures and values abandoned. A second assumption is that poor countries cannot
modernize without money and advice from abroad.

A number of intellectuals in developing countries have argued that the World Bank is deeply
implicated in contemporary modes of donor and NGO imperialism, and that its intellectual
contributions function to blame the poor for their condition.[28]

One of the strongest criticisms of the World Bank has been the way in which it is governed.
While the World Bank represents 186 countries, it is run by a small number of economically
powerful countries. These countries choose the leadership and senior management of the World
Bank, and so their interests dominate the bank.[29]
The World Bank has dual roles that are contradictory: that of a political organization and that of
a practical organization. As a political organization, the World Bank must meet the demands of
donor and borrowing governments, private capital markets, and other international organizations.
As an action-oriented organization, it must be neutral, specializing in development aid, technical
assistance, and loans. The World Bank's obligations to donor countries and private capital
markets have caused it to adopt policies which dictate that poverty is best alleviated by the
implementation of "market" policies.[30]

In the 1990s, the World Bank and the IMF forged the Washington Consensus, policies which
included deregulation and liberalization of markets, privatization and the downscaling of
government. Though the Washington Consensus was conceived as a policy that would best
promote development, it was criticized for ignoring equity, employment and how reforms like
privatization were carried out. Many now agree[citation needed] that the Washington Consensus placed
too much emphasis on the growth of GDP, and not enough on the permanence of growth or on
whether growth contributed to better living standards.[31]

Some analysis shows that the World Bank has increased poverty and been detrimental to the
environment, public health and cultural diversity.[32] Some critics also claim that the World Bank
has consistently pushed a neoliberal agenda, imposing policies on developing countries which
have been damaging, destructive and anti-developmental.[33][34]

It has also been suggested that the World Bank is an instrument for the promotion of US or
Western interests in certain regions of the world. Even South American nations have established
the Bank of the South in order to reduce US influence in the region.[35] Criticism of the bank, that
the President is always a citizen of the United States, nominated by the President of the United
States (though subject to the "approval" of the other member countries). There have been
accusations that the decision-making structure is undemocratic as the US has a veto on some
constitutional decisions with just over 16% of the shares in the bank;[36] Decisions can only be
passed with votes from countries whose shares total more than 85% of the bank's shares.[37] A
further criticism concerns internal management and the manner in which the World Bank is said
to lack accountability.[38]

Criticism of the World Bank often takes the form of protesting as seen in recent events such as
the World Bank Oslo 2002 Protests,[39] the October Rebellion,[40] and the Battle of Seattle.[41]
Such demonstrations have occurred all over the world, even amongst the Brazilian Kayapo
people.[42]

In 2008, a World Bank report which found that biofuels had driven food prices up 75% was not
published. Officials confided that they believed it was suppressed to avoid embarrassing the
then-President of the United States, George W. Bush.[43]

The World Bank has also been criticized for not publishing reports related to the Palestinian
economic situation in the West Bank and Gaza. Economists in the region have often written
damning reports of the Israeli occupation and its effects on the economy, but these reports
remain internal and are not published.
Although controversial and far from proven, there is criticism that World Bank and IMF are used
as a means to fulfill business (interests of large corporations to enter the natural resource markets
of the country and obtain the legal guarantees that it can stay there) or political needs of the main
IMF donors (mostly USA), that were previously historically obtained by more direct activity -
war, economic blockade, espionage. See for example Confessions of an Economic Hit Man.

[edit] Knowledge production

The World Bank has been criticised for the manner in which it engages in "the production,
accumulation, circulation and functioning" of knowledge. The Bank's production of knowledge
has become integral to the funding and justification of large capital projects. The Bank relies on
"a growing network of translocal scientists, technocrats, NGOs, and empowered citizens to help
generate data and construct discursive strategies".[44] Its capacity to produce authoritative
knowledge is a response to intense scrutiny of Bank projects resulting from the successes of
growing anti-Bank and alternative-development movements.[45] "Development has relied
exclusively on one knowledge system, namely, the modern Western one. The dominance of this
knowledge system has dictated the marginalization and disqualification of non-Western
knowledge systems".[46] It has been remarked that in these alternative knowledge systems,
researchers and activists might find alternative rationales to guide interventionist action away
from Western (Bank-produced) ways of thinking. Knowledge production has become an asset to
the Bank, and "it is generated and used in highly strategic ways"[45] to provide justifications for
development.

[edit] Structural adjustment

The effect of structural adjustment policies on poor countries has been one of the most
significant criticisms of the World Bank. The 1979 energy crisis plunged many countries into
economic crises.[47] The World Bank responded with structural adjustment loans which
distributed aid to struggling countries while enforcing policy changes in order to reduce inflation
and fiscal imbalance. Some of these policies included encouraging production, investment and
labour-intensive manufacturing, changing real exchange rates and altering the distribution of
government resources.[48] Structural adjustment policies were most effective in countries with an
institutional framework that allowed these policies to be implemented easily.[48] For some
countries, particularly in Sub-Saharan Africa, economic growth regressed and inflation
worsened.[48] The alleviation of poverty was not a goal of structural adjustment loans, and the
circumstances of the poor often worsened, due to a reduction in social spending and an increase
in the price of food, as subsidies were lifted.[48]

By the late 1980s, international organizations began to admit that structural adjustment policies
were worsening life for the world's poor. The World Bank changed structural adjustment loans,
allowing for social spending to be maintained, and encouraging a slower change to policies such
as transfer of subsidies and price rises.[49] In 1999, the World Bank and the IMF introduced the
Poverty Reduction Strategy Paper approach to replace structural adjustment loans.[50] The
Poverty Reduction Strategy Paper approach has been interpreted as an extension of structural
adjustment policies as it continues to reinforce and legitimize global inequities.[51] Neither
approach has addressed the inherent flaws within the global economy that contribute to
economic and social inequities within developing countries.[52] By reinforcing the relationship
between lending and client states, many believe that the World Bank has usurped indebted
countries' power to determine their own economic policy.[53]

[edit] Water privatization

Sociologist Michael Goldman has argued that "Industry analysts predict that private water will
soon be a capitalized market as precious, and as war-provoking, as oil".[54] Goldman says "These
days, an indebted country cannot borrow capital from the World Bank or IMF without a
domestic water privatization policy as a precondition".[54] The Bank is utilizing "the 'Washington
Consensus' model of "development" to promote water privatization. Following this model, the
World Bank is forcing many countries to commodify their water resources, rather than using
their expertise in the public sector to acknowledge water as a universal human right and an
essential public service".[54] The push for water privatization development plays upon "the
shocking tragedy that much of the world lacks affordable clean water". This image creates "new
opportunities in development, though it may have little to do with ultimately quenching" the
needs of impoverished countries. "The problem of water scarcity for the world's poor has been
analyzed by the World Bank as one in which the public sector has failed to deliver, and has
therefore prevented development from "taking off", and the economy from modernizing. If the
state cannot deliver something as basic as water and sanitation, the argument goes, it is a strong
indication of a general failure of public-sector capacity".[54] However, "with the sale or lease of a
public good comes more than simply a privatized service; alongside it comes a wide set of
postcolonial institutional forces that intervene in state-citizen relations and North-South
dynamics".[55] One notable example is the privatation of water forced upon Bolivians by the
World Bank which led to multiple protests including the 2000 Cochabamba protests.

[edit] Sovereign immunity

Despite claiming goals of "good governance and anti-corruption″[56] the World Bank requires
sovereign immunity from countries it deals with.[57][58][59][60][61] Sovereign immunity waives a
holder from all legal liability for their actions. It is proposed that this immunity from
responsibility is a "shield which [The World Bank] wants resort to, for escaping accountability
and security by the people."[57] As the United States has veto power, it can prevent the World
Bank from taking action against its interests.[57]

[edit] Environmental strategy

The World Bank's ongoing work to develop a strategy on climate change and environmental
threats has been criticized for (i) lacking of a proper overall vision and purpose, (ii) having a
limited focus on its own role in global and regional governance, and (iii) having limited
recognition of specific regional issues, e.g. issues of rights to food and land, and sustainable land
use. Critics have also commented that only 1% of the World Bank's lending goes to the
environmental sector, narrowly defined.[62]

Environmentalists are urging the Bank to stop worldwide support for the development of coal
plants and other large emitters of greenhouse gas and operations that are proven to pollute or
damage the environment. For instance, protesters in South Africa and abroad have criticized the
2010 decision of the World Bank's approval for a $3.75 billion loan to build the world's 4th
largest coal-fired power plant in South Africa. The plant will greatly increase the demand for
coal mining and corresponding harmful environmental effects of coal.

What are the main concerns and criticism

about the World Bank and IMF?
Criticism of the World Bank and the IMF encompasses a whole range of issues but they
generally centre around concern about the approaches adopted by the World Bank and the IMF
in formulating their policies. This includes the social and economic impact these policies have on
the population of countries who avail themselves of financial assistance from these two
institutions.

Critics of the World Bank and the IMF are concerned about the conditionalities imposed on
borrower countries. The World Bank and the IMF often attach loan conditionalities based on
what is termed the 'Washington Consensus', focusing on liberalisation—of trade, investment and
the financial sector—, deregulation and privatisation of nationalised industries. Often the
conditionalities are attached without due regard for the borrower countries' individual
circumstances and the prescriptive recommendations by the World Bank and IMF fail to resolve
the economic problems within the countries.

IMF conditionalities may additionally result in the loss of a state's authority to govern its own
economy as national economic policies are predetermined under the structural adjustment
packages. Issues of representation are raised as a consequence of the shift in the regulation of
national economies from state governments to a Washington-based financial institution in which
most developing countries hold little voting power.

With the World Bank, there are concerns about the types of development projects funded by the
IBRD and the IDA. Many infrastructural projects financed by the World Bank Group have social
and environmental implications for the populations in the affected areas and criticism has centred
around the ethical issues of funding such projects. For example, World Bank-funded construction
of hydroelectric dams in various countries have resulted in the displacement of indigenous
peoples of the area. There are also concerns that the World Bank working in partnership with the
private sector may undermine the role of the state as the primary provider of essential goods and
services, such as healthcare and education, resulting in the shortfall of such services in countries
badly in need of them.

Critics of the World Bank and the IMF are also apprehensive about the role of the Bretton
Woods institutions in shaping the development discourse through their research, training and
publishing activities. As the World Bank and the IMF are regarded as experts in the field of
financial regulation and economic development, their views and prescriptions may undermine or
eliminate alternative perspectives on development.

There are also criticisms against the World Bank and IMF governance structures which are
dominated by industrialised countries. Decisions are made and policies implemented by leading
industrialised countries—the G7—because they represent the largest donors without much
consultation with poor and developing countries.

Asian Development Bank

Our Vision - an Asia and Pacific Free of Poverty
ADB is an international development finance institution whose mission is to help its
developing member countries reduce poverty and improve the quality of life of their people.

Headquartered in Manila, and established in 1966, ADB is owned and financed by its 67
members, of which 48 are from the region and 19 are from other parts of the globe.

ADB's main partners are governments, the private sector, nongovernment organizations,
development agencies, community-based organizations, and foundations.

Under Strategy 2020, a long-term strategic framework adopted in 2008, ADB will follow
three complementary strategic agendas: inclusive growth, environmentally sustainable
growth, and regional integration.

In pursuing its vision, ADB's main instruments comprise loans, technical assistance, grants,
advice, and knowledge.

Although most lending is in the public sector - and to governments - ADB also provides
direct assistance to private enterprises of developing countries through equity investments,
guarantees, and loans. In addition, its triple-A credit rating helps mobilize funds for
development.

Policies and Strategies

In 2008, ADB's Board of Directors approved Strategy 2020: The Long-Term Strategic
Framework of the Asian Development Bank 2008-2020. It is the paramount ADB-wide
strategic framework to guide all its operations to 2020.

In 2009, ADB's Board of Governors has agreed to triple ADB's capital base from $55 billion
to $165 billion, giving it much-needed resources to respond to the global economic crisis
and to the longer-term development needs of the Asia and Pacific region. Voting by ADB's
67 member countries on GCI V closed on 29 April 2009, with an overwhelming majority of
members endorsing it. The 200% increase is ADB's largest, and the first since ADB
increased its capital by 100% in 1994.

Strategy 2020 reaffirms both ADB's vision of an Asia and Pacific free of poverty [PDF] and its
mission to help developing member countries improve the living conditions and quality of
life of their people.

Strategy 2020 identifies drivers of change that will be stressed in all its operations—
developing the private sector, encouraging good governance, supporting gender equity,
helping developing countries gain knowledge, and expanding partnerships with other
development institutions the private sector, and with community-based organizations.
By 2012, 80% of ADB lending will be in five core operational areas, identified as
comparative strengths of ADB:

• Infrastructure, including transport and communications, energy, water supply and

sanitation and urban development
• Environment
• Regional cooperation and integration
• Finance sector development
• Education

ADB will continue to operate in health, agriculture, and disaster and emergency assistance,
but on a more selective basis.

ADB has developed a corporate results framework [ PDF ] to assess its progress in
implementing Strategy 2020. Annually, it will monitor implementation through the ADB
Development Effectiveness Review.

Key policy and strategy papers to supplement Strategy 2020 implementation on priority
sectors and themes are listed on these pages.

• Drivers of Change
• Core Operational Areas
• Other Operational Policies and Strategies

View the list of safeguard policies and sector or thematic strategies to be developed or
reviewed over the next 12 months.

Membership
From 31 members at its establishment in 1966, ADB has grown to encompass 67 members
- of which 48 are from within Asia and the Pacific and 19 outside. Some member countries
enter a new phase in their relationship with ADB as defined under the Classification and
Graduation Policy.

Figures are as of 31 December 2008, before the fifth general capital increase process
began. The process is ongoing, and the final figures are expected to be available by 31
December 2010. Current subscription levels are available from the Office of the Secretary.

Financial Resources
Carrying a triple-A credit rating, ADB raises funds through bond issues on the world's capital
markets. It also utilizes its members' contributions and retained earnings from lending
operations. These sources comprise ADB's ordinary capital resources and account for 74.1%
of lending to ADB's developing member countries.

Loans are also provided from Special Funds Resources - financed mostly from contributions
of donor members for ADB's concessional loan and technical assistance programs.

How ADB's Assistance is Financed

Ordinary Capital Resources: These are a pool of funds available for ADB's lending
operations, replenished by borrowings from the world's capital markets. OCR loans are
offered at near-market terms to better-off borrowing countries.

Asian Development Fund: Funded by ADB's donor member countries, ADF offers loans at
very low interest rates and grants that help reduce poverty in ADB's poorest borrowing
countries. Read more about ADF's Impact

Technical Assistance: Assists countries in identifying and designing projects, improving

institutions, formulating development strategies, or fostering regional cooperation. TA can
be financed by grants, or - more rarely - loans through ADB's central budget or a number of
special funds provided by ADB's donor members.

Innovation and Efficiency Initiative - Financing Instruments and Modalities: In 2005, new
financing instruments and modalities were introduced under IEI. These new financing
instruments are intended to provide ADB clients and operational teams with additional
alternatives to help finance development projects.

From Wikipedia, the free encyclopedia

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Asian Development Bank

ADB logo

Fighting poverty in Asia and the

Motto
Pacific

Formation 22 August 1966

Type Regional organization

Legal statu
Treaty
s
Purpose/fo
Crediting
cus

Headquart Mandaluyong City, Metro Manila,

ers Philippines

Region ser
Asia-Pacific
ved

Membershi
67 countries
p

President Haruhiko Kuroda

Main organ Board of Directors[1]

Staff 2,500+

Website http://www.adb.org

Asian Development Bank member states Outside regions Asia-Pacific region

ADB Headquarters, Manila

The Asian Development Bank (ADB) is a regional development bank established on 22 August
1966 to facilitate economic development of countries in Asia.[2] The bank admits the members of
the UN Economic Commission for Asia and the Far East (now UNESCAP) and nonregional
developed nations.[2] From 31 members at its establishment, ADB now has 67 members - of
which 48 are from within Asia and the Pacific and 19 outside. ADB was modeled closely on the
World Bank, and has a similar weighted voting system where votes are distributed in proportion
with member's capital subscriptions. At present, both USA and Japan hold 552,210 shares - the
largest proportion of shares at 12.756 percent each.[3]

Contents
[hide]

• 1 Organization
• 2 History
o 2.1 1962-1972
o 2.2 1972-1986
o 2.3 Since 1986
• 3 ADB Lending
• 4 Notable ADB projects and Technical
Assistance
• 5 Effectiveness
• 6 Criticism
• 7 Members
• 8 United Nations Development Business
• 9 References
• 10 See also

• 11 External links

[edit] Organization

The highest policy-making body of the bank is the Board of Governors composed of one
representative from each member state. The Board of Governors, in turn, elect among themselves
the 12 members of the Board of Directors and their deputy. Eight of the 12 members come from
regional (Asia-Pacific) members while the others come from non-regional members.

The Board of Governors also elect the bank's President who is the chairperson of the Board of
Directors and manages ADB. The president has a term of office lasting five years, and may be
reelected. Traditionally, and because Japan is one of the largest shareholders of the bank, the
President has always been Japanese. The current President is Haruhiko Kuroda, who succeeded
Tadao Chino in 2005.
The headquarters of the bank is at 6 ADB Avenue, Mandaluyong City, Metro Manila,
Philippines, and it has representative offices around the world. The bank employs approximately
2,400 people, coming from 55 of its 67 member countries, and with more than half of the staff
being Filipino.

[edit] History
[edit] 1962-1972

ADB was originally conceived by some influential Japanese who formulated a "private plan" for
a regional development bank in 1962, which was later endorsed by the government. The
Japanese felt that its interest in Asia was not served by the World Bank and wanted to establish a
bank in which Japan was institutionally advantaged. Once the ADB was founded in 1966, Japan
took a prominent position in the bank; it received the presidency and some other crucial "reserve
positions" such as the director of the administration department. By the end of 1972, Japan
contributed $173.7 million (22.6 percent of the total) to the ordinary capital resources and $122.6
million (59.6 percent of the total) to the special funds. In contrast, the United States contributed
only $1.25 million for the special fund.[2]

The ADB served Japan's economic interests because its loans went largely to Indonesia,
Thailand, Malaysia, South Korea and the Philippines, the countries with which Japan had crucial
trading ties; these nations accounted for 78.48 percent of the total ADB loans in 1967-72.
Moreover, Japan received tangible benefits, 41.67 percent of the total procurements in 1967-76.
Japan tied its special funds contributions to its preferred sectors and regions and procurements of
its goods and services, as reflected in its $100 million donation for the Agricultural Special Fund
in April 1968.[2]

Takeshi Watanabe served as the first ADB president from 1966 to 1972.

[edit] 1972-1986

Japan's share of cumulative contributions increased from 30.4 percent in 1972 to 35.5 percent in
1981 and 41.9 percent in 1986. In addition, Japan was a crucial source of ADB borrowing, 29.4
percent (out of $6,729.1 million) in 1973-86, compared to 45.1 percent from Europe and 12.9
percent from the United States. Japanese presidents Inoue Shiro (1972–76) and Yoshida Taroichi
(1976–81) took the spotlight. Fujioka Masao, the fourth president (1981–90), adopted an
assertive leadership style. He announced an ambitious plan to expand the ADB into a high-
impact development agency. His plan and banking philosophy led to increasing friction with the
U.S. directors, with open criticism from the Americans at the 1985 annual meeting.[2]

During this period there was a strong parallel institutional tie between the ADB and the Japanese
Ministry of Finance, particularly the International Finance Bureau (IFB).

[edit] Since 1986

Its share of cumulative contributions increased from 41.9 percent in 1986 to 50.0 per- cent in
1993. In addition, Japan has been a crucial lender to the ADB, 30.4 percent of the total in 1987-
93, compared to 39.8 percent from Europe and 11.7 percent from the United States. However,
different from the previous period, Japan has become more assertive since the mid 1980s. Japan's
plan was to use the ADB as a conduit for recycling its huge surplus capital and a "catalyst" for
attracting private Japanese capital to the region. After the 1985 Plaza Accord, Japanese
manufacturers were pushed by high yen to move to Southeast Asia. The ADB played a role in
channeling Japanese private capital to Asia by improving local infrastructure.[2] The ADB also
committed itself to increasing loans for social issues such as education, health and population,
urban development and environment, to 40 percent of its total loans from around 30 percent at
the time.[2]

[edit] ADB Lending

The ADB offers "hard" loans from ordinary capital resources (OCR) on commercial terms, and
the Asian Development Fund (ADF) affiliated with the ADB extends "soft" loans from special
fund resources with concessional conditions. For OCR, members subscribe capital, including
paid-in and callable elements, a 50 percent paid-in ratio for the initial subscription, 5 percent for
the Third General Capital Increase (GCI) in 1983 and 2 percent for the Fourth General Capital
Increase in 1994. The ADB borrows from international capital markets with its capital as
guarantee.[2]

In 2009, ADB obtained member-contributions for its Fifth General Capital Increase of 200%, in
response to a call by G20 leaders to increase resources of multilateral development banks so as to
support growth in developing countries amid the global financial crisis. For 2010 and 2011, a
200% GCI allows lending of $12.5-13.0 billion in 2010 and about $11.0 billion in 2011.[4] With
this increase, the bank's capital base has tripled from $55 billion to $165 billion.[5\

FUNCTIONS

FUNCTIONS

To fulfill its purpose, the Bank shall have the following functions:

i. to promote investment in the region of public and private capital for development
purposes;
ii. to utilize the resources at its disposal for financing development of the developing
member countries in the region, giving priority to those regional, sub-regional as well
as national projects and programmes which will contribute most effectively to the
harmonious economic growth of the region as a whole, and having special regard to
the needs of the smaller or less developed member countries in the region;
iii. to meet requests from members in the region to assist them in the coordination of
their development policies and plans with a view to achieving better utilization of
their resources, making their economies more complementary, and promoting the
orderly expansion of their foreign trade, in particular, intra-regional trade;
iv. to provide technical assistance for the preparation, financing and execution of
development projects and programmes, including the formulation of specific project
proposals;
v. to co-operate, in such manner as the Bank may deem appropriate, within the terms
of this Agreement, with the United Nations, its organs and subsidiary bodies
 including, in particular, the Economic Commission for Asia and the Far East, and with
public international organizations and other international institutions, as well as
national entities whether public or private, which are concerned with the investment
of development funds in the region, and to interest such institutions and entities in
new opportunities for investment and assistance; and
vi. to undertake such other activities and provide such other services as may advance
its purpose.

International Development Association

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IBRD loans and IDA credits in 2005

The International Development Association (IDA) , is the part of the World Bank that helps
the world’s poorest countries. It complements the World Bank's other lending arm — the
International Bank for Reconstruction and Development (IBRD) — which serves middle-income
countries with capital investment and advisory services.

IDA was created on September 24, 1960 and is responsible for providing long-term, interest-free
loans to the world's 80 poorest countries, 39 of which are in Africa. IDA provides grants and
credits (subject to general conditions (pdf)), with repayment periods of 35 to 40 years. Since its
inception, IDA credits and grants have totaled $161 billion, averaging $7–$9 billion a year in
recent years and directing the largest share, about 50%, to Africa. While the IBRD raises most of
its funds on the world's financial markets, IDA is funded largely by contributions from the
governments of the richer member countries. Additional funds come from IBRD income and
repayment of IDA credits.

IDA loans address primary education, basic health services, clean water supply and sanitation,
environmental safeguards, business-climate improvements, infrastructure and institutional
reforms. These projects are intended to pave the way toward economic growth, job creation,
higher incomes and better living conditions.

[edit] Mission statement

This article may require cleanup to meet Wikipedia's quality standards.
Please improve this article if you can. (October 2007)

The International Development Association (IDA) is the part of the World Bank that helps the
world’s poorest countries reduce poverty by providing no- interest loans and grants for programs
aimed at boosting economic growth and improving living conditions. IDA funds help these
countries deal with the complex challenges they face in striving to meet the Millennium
Development Goals. They must, for example, respond to the competitive pressures as well as the
opportunities of globalization; arrest the spread of HIV/AIDS; and prevent conflict or deal with
its aftermath.

IDA’s long-term (streched over 35 to 40 years), no-interest loans pay for programs that build the
policies, institutions, infrastructure and human capital needed for equitable and environmentally
sustainable development. IDA’s goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy, reducing poverty and promoting
more equal access to the opportunities created by economic growth.IDA also provides grants to
countries at risk of debt distress.

[edit] History

The International Bank for Reconstruction and Development (IBRD), better known as the World
Bank, was established in 1944 to help Europe recover from the devastation of World War II. The
success of that enterprise led the Bank, within a few years, to turn its attention to the developing
countries. By the 1950s, it became clear that the poorest developing countries needed softer
terms than those that could be offered by the Bank, so they could afford to borrow the capital
they needed to grow.

With the United States taking the initiative, a group of the Bank’s member countries decided to
set up an agency that could lend to the poorest countries on the most favourable terms possible.
They called the agency the "International Development Association." Its founders saw IDA as a
way for the "haves" of the world to help the "have-nots." But they also wanted IDA to be run
with the discipline of a bank. For this reason, US President Dwight D. Eisenhower proposed, and
other countries agreed, that IDA should be part of the World Bank (IBRD).

IDA's Articles of Agreement became effective in 1960. The first IDA loans, known as credits,
were approved in 1961 to Chile, Honduras, India and Sudan.

IBRD and IDA are run on the same lines. They share the same staff and headquarters, report to
the same president and evaluate projects with the same rigorous standards. But IDA and IBRD
draw on different resources for their lending, and because IDA’s loans are deeply concessional,
IDA’s resources must be periodically replenished (see "IDA Funding" below). A country must
be a member of IBRD before it can join IDA; 169 countries are IDA members.

FUNCTIONS

The International Development Association seeks to:

1. Promote world development, increase productivity and standards of leaving in the less
developed countries of its membership
2. Assist the International Bank for Reconstruction and Development

International Finance Corporation

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The International Finance Corporation Building, designed by architect Michael

Graves, is located on Pennsylvania Avenue, NW in Washington, D.C.

The International Finance Corporation (IFC) promotes sustainable private sector investment
in developing countries.

IFC is a member of the World Bank Group and is headquartered in Washington, DC. It shares
the primary objective of all World Bank Group institutions: to improve the quality of the lives of
people in its developing member countries.[1]

Established in 1956, IFC is the largest multilateral source of loan and equity financing for private
sector projects in the developing world. It promotes sustainable private sector development
primarily by:
 1. Financing private sector projects and companies located in the developing
world.
2. Helping private companies in the developing world mobilize financing in
international financial markets.
3. Providing advice and technical assistance to businesses and governments.

Contents
[hide]

• 1 Ownership and
management
• 2 Funding
• 3 Activities
• 4 See also
• 5 References

• 6 External links

[edit] Ownership and management

IFC has 182 member countries , which collectively determine its policies and approve
investments. To join IFC, a country must first be a member of the International Bank for
Reconstruction and Development (IBRD). IFC's corporate powers are vested in its Board of
Governors, to which member countries appoint representatives. IFC's share capital, which is paid
in, is provided by its member countries, and voting is in proportion to the number of shares held.
IFC's authorized capital (the sums contributed by its members over the years) is $2.4 billion;
IFC's net worth (which includes authorized capital and retained earnings) was $9.8 billion as of
June 2005.[2]

The Board of Governors delegates many of its powers to the Board of Directors, which is
composed of the Executive Directors of the IBRD, and which represents IFC's member
countries. The Board of Directors reviews all projects.

The President of the World Bank Group, Robert Zoellick, also serves as IFC's president. IFC's
CEO and Executive Vice President, Lars H. Thunell, is responsible for the overall management
of day-to-day operations. He was appointed on January 15, 2006.

Although IFC coordinates its activities in many areas with the other institutions in the World
Bank Group, IFC generally operates independently as it is legally and financially autonomous
with its own Articles of Agreement, share capital, management and staff.

[edit] Funding

The IFC's equity and quasi-equity investments are funded out of its paid-in capital and retained
earnings (which comprise its net worth). Strong shareholder support, triple-A ratings, and a
substantial capital base allow the IFC to raise funds on favorable terms in international capital
markets. As of June 30, 2006, retained earnings represented almost three-quarters of the IFC's
$9.8 billion net worth.

[edit] Activities

Within the World Bank Group, the World Bank finances projects with sovereign guarantees,
while the IFC finances projects without sovereign guarantees. This means that the IFC is
primarily active in private sector projects, although some projects in the public sector (at the
municipal or sub-national level) have recently been funded.

Private sector financing is IFC's main activity, and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history). Like a bank, IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient risk-
adjusted return on its global portfolio of projects.

IFC's activities, however, must meet a second test of contributing to a reduction in poverty in
line with its mandate. In practice, this is broadly interpreted, but considerable time and effort is
devoted to both (i) selecting projects with positive developmental outcomes, and (ii) improving
the developmental outcome of projects by various means.

IFC provides both investment and advisory services. IFC also carries out technical cooperation
projects in many countries to improve the investment climate. These activities may be linked to a
specific investment project, or, increasingly, to broader goals such as improving the legislative
environment for a specific industry. IFC's technical cooperation projects are generally funded by
donor countries or from IFC's own budget.

IFC's Advisory Services focus on five core areas: Access to Finance, Business Enabling
Environment, Environmental & Social Sustainability, Infrastructure Advisory, and Corporate
Advice. Advisory services to expand access to finance (A2F) often accompanies IFC's financial
investments, and includes assistance to banks and specialized financial institutions in improving
their ability to provide financial services to micro, small, and medium enterprises.

After successful pilots in several countries, the WorldHotel-Link project was successfully spun
off from the IFC on 31 March 2006 and is now a private company with global reach helping
locally-owned small scale travel service providers in developing-world destinations overcome
market access barriers.

CommDev (The Oil, Gas and Mining Sustainable Community Development Fund) is a funding
mechanism for practical capacity building, training, technical assistance, implementation
support, awareness-raising, and tool development. Operating flexibly and efficiently, CommDev
serves as an integral component of an extractive industry project, enhancing, accelerating, and
extending the value-added support given to communities beyond the compliance requirements of
IFC investment projects and World Bank loan.

Critics have questioned the sustainability of some IFC-funded projects. The IFC recently
invested $9 million in the upgrading of a slaughterhouse facility in the Amazon region owned by
Brazil's biggest beef producer, despite opposition from local NGOs and the Sierra Club.[3] In
2009 an internal audit found that the IFC had ignored its own environmental and social
protection standards when it approved nearly $200 million in loan guarantees for palm oil
production in Indonesia[4].

IFC's Vision, Values, & Purpose

Our vision is that people should have the opportunity to escape poverty and improve their lives.

Our values are excellence, commitment, integrity, and teamwork.

IFC's Purpose is to create opportunity for people to escape poverty and improve their lives by

• Promoting open and competitive markets in developing countries

• Supporting companies and other private sector partners where there is a gap
• Helping generate productive jobs and deliver essential services to the underserved
• Catalyzing and mobilizing other sources of finance for private enterprise development

To achieve its Purpose, IFC offers development-impact solutions through firm-level

interventions (direct investments, advisory services, and the IFC Asset Management Company);
standard-setting; and business enabling environment work.

Our Shared Mission

IFC, as the private sector arm of the World Bank Group, shares its mission:

To fight poverty with passion and professionalism

for lasting results. To help people help themselves
and their environment by providing resources,
sharing knowledge, building capacity, and
forging partnerships in the public and private sectors.
What We Do
IFC fosters sustainable economic growth in developing countries by financing private sector
investment, mobilizing capital in the international financial markets, and providing advisory
services to businesses and governments.

IFC helps companies and financial institutions in emerging markets create jobs, generate tax
revenues, improve corporate governance and environmental performance, and contribute to their
local communities. The goal is to improve lives, especially for the people who most need the
benefits of growth.

Where IFC Works

IFC invests in enterprises majority-owned by the private sector throughout most developing
countries in the world. Developing regions include:

• Sub-Saharan Africa
• East Asia & the Pacific
• South Asia
• Europe & Central Asia
• Latin America & the Caribbean
• Middle East & North Africa

IFC's Strategic Priorities

IFC emphasizes five strategic priorities for maximizing its sustainable development impact:

• Strengthening its focus on frontier markets, particularly the SME sector;

• Building long-term partnerships with emerging global players in developing countries;
• Addressing climate change, and environment and social sustainability activities;
• Addressing constraints to private sector investment in infrastructure, health, and
education; and
• Developing domestic financial markets through institution building and the use of
innovative financial products.

For all new investments, IFC articulates the expected impact on sustainable development, and, as
the projects mature, IFC assesses the quality of the development benefits realized.

Investments

IFC offers an array of financial products and services to its clients and continues to develop
new financial tools that enable companies to manage risk and broaden their access to foreign and
domestic capital markets.

Advisory Services

IFC offers a range of advisory services in support of private sector development in developing
countries.

FUNCTIONS

The main purpose of the International Finance Corporation is to promote economic development
through increased productivity of the private sector in member countries.

Multilateral Investment Guarantee Agency

About MIGA
As a member of the World Bank Group, MIGA's mission is to promote foreign direct investment
(FDI) into developing countries to help support economic growth, reduce poverty, and improve
people's lives. It does this by providing political risk insurance (guarantees) to the private sector.

Why Promote FDI?

The development needs today are stark. Billions of people live without access to safe drinking
water or sewage treatment. Children can't attend school because there's no electricity to light
classrooms in some countries, and no roads to get to school in others. The list goes on.
Developing country governments cannot shoulder the burden—financially or technically—of
addressing these needs alone.

Foreign direct investors can play a critical role in reducing poverty, by building roads, for
example, providing clean water and electricity, and above all, providing jobs. By taking on these
tasks, the private sector can help economies grow and avert the need for governments to use
funds better spent on acute social needs, while taking advantage of the opportunity to make
profitable investments.

MIGA and FDI

Concerns about investment environments and perceptions of political risk often inhibit foreign
direct investment, with the majority of flows going to just a handful of countries and leaving the
world's poorest economies largely ignored. MIGA addresses these concerns by providing
political risk insurance for foreign investments in developing countries and dispute resolution
services for guaranteed investments to prevent disruptions to developmentally beneficial
projects. MIGA also helps countries define and implement strategies to promote investment
through technical assistance services managed by the World Bank Group’s Foreign Investment
Advisory Services (FIAS).

MIGA's operational strategy plays to our foremost strength in the marketplace—attracting

investors and private insurers into difficult operating environments. The agency's strategy
focuses on specific areas where we can make the greatest difference

• Countries eligible for assistance from the International Development Association (the
world’s poorest countries)
• Conflict-affected environments
• Complex deals in infrastructure and extractive industries, especially those involving
project finance and environmental and social considerations
• South-South investments (from one developing country to another)

MIGA offers comparative advantages in all of these areas—from our unique package of products
and ability to restore the business community's confidence, to our ongoing collaboration with the
public and private insurance market to increase the amount of insurance available to investors.
MIGA also develops and deploys tools and technologies to support the spread of information on
investment opportunities. Thousands of users take advantage of our suite of online investment
information services.

Supporting developmentally sound investments

As a multilateral development agency, MIGA only supports investments that are

developmentally sound and meet high social and environmental standards. MIGA applies a
comprehensive set of social and environmental performance standards to all projects and offers
extensive expertise in working with investors to ensure compliance to these standards.

Since its inception in 1988, MIGA has issued guarantees worth more than $21 billion for more
than 600 projects in 100 developing countries.

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The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
Group. It was established to promote foreign direct investment into developing countries. MIGA
was founded in 1988 with a capital base of $1 billion and is headquartered in Washington, DC.
MIGA's shareholders are its 175 member countries.

MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk, advising governments on attracting investment, sharing information
through on-line investment information services, and mediating disputes between investors and
governments. MIGA's strength compared to private providers of political risk insurance is its
membership of the World Bank Group, which allows it to intervene with host governments to
resolve claims before they are filed.

[edit] MIGA's Business

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries. Guarantees to protect investors against the risks of Currency
inconvertibility and transfer restriction; Expropriation; War, civil disturbance, and terrorism;
Breach of contract (for contracts between the investor/project enterprise and the authorities of the
host country); and Non-honoring of sovereign financial obligations. These coverages may be
purchased individually or in combination.

MIGA can cover only new investments. These include:

 • new, greenfield investments;
• new investment contributions associated with the expansion, modernization,
or financial restructuring of existing projects; and
• acquisitions involving privatization of state enterprises.

Izumi Kobayashi joined MIGA as Executive Vice President on November 24, 2008. James P.
Bond occupies the position of Chief Operating Officer; Aradhana Kumar-Kapoor is Acting
Director and General Counsel; Kevin Lu is Chief Financial Officer and Director, Finance and
Risk Management; Daniel Villar is acting Chief Economist and Director, Economics and Policy;
and Edith Quintrell is Director of Operations.

FUNCTIONS

The primary objective of the Multilateral Investment Agency is to increase the volume of private
investments, especially investments which aim at the increase of productivity in the developing
parts of the world.

1. Understanding foreign direct investment

2. Developing an investment promotion agency
3. Creating an investment promotion strategy
4. Building effective partnerships
5. Strengthening the location’s image
6. Targeting and generating investment opportunities
7. Servicing investors
8. Monitoring and evaluating activities and results
9. Utilizing information technology

The World Bank in India

The World Bank is one of the world’s largest sources of funding and knowledge for developing
countries. India is one of our oldest members, having joined the institution at its inception in
1944.

In India, the World Bank works in close partnership with the Central and State Governments. It also works
with other development partners: bilateral and multilateral donor organizations, nongovernmental
organizations (NGOs), the private sector, and the general public—including academics, scientists,
economists, journalists, teachers, and local people involved in development projects.

THE WORLD BANK’S PLAN OF ACTION IN INDIA

The World Bank's work plan in Indiais spelt out in its Country Strategy (CAS). The Country Strategy for
India is closely aligned with India's own development priorities and describes what kind of support and
how much can be provided to the country over a period of around four years.

The Country Strategy for India for 2009-2012 is aligned with the government's Eleventh Five Year Plan. It
focuses on helping the country to fast-track the development of much-needed infrastructure, support the
seven poorest states, and respond to the financial crisis. See Video
.
The strategy was arrived at after a series of consultations with a broad range of stakeholders, including
members of the government and civil society.
.
The strategy envisages total proposed lending of US$14 billion for 2009 - 2012. As private financing dries
up in the wake of the global financial crisis, the Bank has agreed to provide an additional US$ 3 billion as
part of the total financing envelope of US$ 14 billion.

The strategy is implemented through lending, dialogue, analytical work, engagement with the private
sector, and capacity building exercises.

The Bank’s previous four-year Country Strategy for 2005-2008 focused on lending for infrastructure,
human development, and improving rural livelihoods. (Read Country Strategy Progress Report.)

PROJECTS

The Bank’s method of operation is not to implement “World Bank projects,” but to provide financing and
advice for projects which are owned and supported by the Indian government and the people and form
part of their overall development agenda.

Various financing options are available based upon the type of assistance needed. It is important to note
that the implementation of projects is managed by the government itself. The government designates an
office, referred to as the Project Implementing Agency (PIU), which is responsible for aspects such as
procurement and selection of consultants and day-to-day work, monitoring, and evaluation.

The Bank’s operational policies set guidelines to ensure that projects meet its own criteria such as social
and environmental standards. Projects are evaluated to capture and share lessons for similar projects in
future.

Also See: Q&A on the World Bank in India ; What is the World Bank?

LENDING

At the end of June 30, 2010, the World Bank group had 75 active projects in the country. The net
commitment for these projects was about $21.4 billion. New lending in FY10
(1 July 2009- 30 June 2010) amounted to $9.3 billion.

Total IBRD/IDA Commitments as on June 30, 2010 (FY10): $21.4 billion

(by fiscal year, in nearest $ billion)
Commitments FY05 FY06 FY07 FY08 FY09 FY10
New Lending 2.9 1.4 3.7 2.7 2.3 9.3
Total Commitments (Active Projects) 12.8 11.3 14.3 13.8 14.9 21.4
Total No. of Active Projects 64 56 67 60 61 75
India's Debt Service Payments

India Country Strategy 2009-12

The World Bank’s Country Strategy (CAS) for India for 2009-2012 focuses on helping the
country to fast-track the development of much-needed infrastructure and to support the seven
poorest states achieve higher standards of living for their people. The strategy envisages a total
proposed lending program of US$14 billion, for the next three years, of which US$9.6 billion is
from the International Bank for Reconstruction and Development (IBRD) and US$4.4 billion
(SDR 2.982 billion equivalent at the current exchange rate) from the International Development
Association (IDA).

Giovanna Prennushi, World Bank Economic Advisor talks about the key points of the India
Strategy

The strategy is closely aligned with the Government of India’s own development priorities
expressed in the Eleventh Five Year Plan. It was arrived at after a series of consultations with a
broad range of stakeholders including the government and civil society. Under the strategy, the
Bank will use lending, dialogue, analytical work, engagement with the private sector, and
capacity building to help India achieve its goals.

Maintaining rapid and inclusive growth

Infrastructure: For India's rapid and sustained growth, major investments in power, transport,
water, and urban development are needed. Inadequate power supply remains a critical constraint
to growth; while GDP grew at an average of about 8% a year over the past five years, electricity
generation only grew at an average of 4.9% per year. The national and state highway networks
have not kept pace with the tremendous growth in demand for road transport: only about 30% of
state highways are two-lane and more than 50% are in poor condition. Inadequate urban
infrastructure is hampering the expansion of growth centers. While the Eleventh Plan foresees a
major role for private sector involvement in infrastructure development through PPPs, these may
not materialize to the extent hoped for in the aftermath of the global financial crisis. The
Government of India has requested the World Bank to specially focus on infrastructure
investment in its new strategy, including on strengthening the capacity of government agencies
to design and manage public-private partnerships(PPPs).
Rachid Benmessaoud, Acting Country Director for India, talks about the importance of
infrastructure for India's growth.

Skills: The shortage of skills is preventing large segments of the population from being part of
India's growth story. Nearly 44% of India’s labor force is illiterate, only 17% of it has secondary
schooling, and enrollment in higher education is just 11%. This compares unfavorably with, for
example, China, where access to secondary education is almost universal and enrollment in
higher education exceeds 20%. Moreover, the quality of most Indian graduates is poor and
employers offer very little skills upgrading (16% of Indian manufacturers offer in-service
training to their employees, compared to over 90% of Chinese firms). The informal sector
employs over 90% of the workforce, but there is very little investment or opportunity for formal
`skilling’ for informal workers and enterprises.

Agricultural Growth: Low agricultural productivity is keeping some 60 percent of India’s

population behind. Shortages of basic rural infrastructure - from roads to electrification - are
hindering the growth of off-farm activities. No doubt, agricultural growth has been faster over
the past five years (4.7% per year)- facilitated by very good monsoons, greater production of
high-value fruits, vegetables, and dairy products, an increase in the minimum support price for
grains, and the sudden increase in global prices for agricultural products. But, sustaining this
level of performance over the longer term will be difficult without addressing several policy and
structural constraints, including a myriad of restrictions, subsidies, support prices, sector
governance issues, as well as the tiny size of landholdings and years of underinvestment. The
Indian Government has asked the World Bank to place special emphasis on agricultural
development in its new strategy.

Making development sustainable

Most environmental indicators suggest that growth is extracting an increasing toll on the
country's natural resources - water, land, forests, soils and biodiversity - and leaving a larger
pollution footprint. India is highly vulnerable to climate change; cyclones, floods and droughts
are happening with increasing frequency, and the Himalayan glaciers that feed India’s largest
rivers show clear signs of retreat. Indeed, climate change will impact India first and foremost
through its water resources. Rising temperatures will also affect agricultural yields, forests, and
marine and coastal biodiversity. India will need to better manage these resources (particularly
water) and reduce the burden that environmental degradation is imposing on the population,
particularly on the most vulnerable groups.

Increasing the effectiveness of service delivery

While much progress has been made on primary school enrollment, improvements have been
elusive in other sectors, particularly health. Although deaths from TB have fallen and polio cases
have reduced dramatically in 2008, child malnutrition levels are worse than in Sub-Saharan
Africa, despite large expenditures. No Indian city provides water 24/7, only half the population
has access to safe drinking water, and less than a third has access to sanitation. Public services
fall short largely because they have little or no accountability to the ultimate client, and outdated
management systems are unable to provide the information needed for decision-making. These
issues are particularly acute in centrally sponsored schemes which are designed and funded by
the central government but implemented by the states and lower echelons of government. Given
the importance of these schemes, systemic improvements in design and governance are crucial to
get results from public spending. The Government of India has requested the World Bank to
place special emphasis in its new strategy on centrally sponsored schemes that aim to achieve the
MDGs. The Bank will focus on increasing accountability to citizens, decentralizing
responsibilities, and enhancing private sector participation in the delivery of these services.

Strategies for states

Given India’s enormous size and diversity, the Bank will adopt different strategies for states
depending on their needs, stages of development, and capacity for project implementation.
Special strategies will also be adopted for the Northeastern and Himalayan states.

Low-income states
The new strategy devotes more resources to engaging with India’s seven low-income states -
Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh - which
are home to more than half of India’s population. Here, the Bank will focus on poverty reduction
and on achieving the Millennium Development Goals (MDGs). Intensive technical assistance
will be provided to help these states develop their administrative capacity. Bank lending to these
states will primarily be in the form of low-interest IDA credits as well as technical and advisory
services.

Middle-income states
India's richest states already have incomes comparable to lower middle income countries, with
incomes being some five times higher than those in the poorest states. This gap is higher than
most other democratic societies.In these states, the Bank will provide support on two fronts:
fighting poverty in their lagging regions, and addressing the complex challenges emerging from
rapid growth. States such as Andhra Pradesh, Karnataka, Punjab, Tamil Nadu, Haryana, Gujarat,
and Maharashtra will be helped to forge the institutions needed in a middle income economy.
Cutting-edge analytical work and the best international expertise will be brought to bear upon
complex problems where there are yet no clear solutions. Lending to these states will be in the
form of competitively priced IBRD loans, with the International Finance Corporation (IFC) – the
Bank’s private sector arm – providing support for private sector clients.

Engaging the Center

The World Bank will continue to assist the central government by providing comprehensive
analytical work to underpin policy and institutional reform and to improve the implementation of
central government projects on the ground. Under the Sarva Siksha Abhiyan (SSA) for example,
while schools are now more accessible and gender parity has been reached, the focus will now be
on improving the quality of education provided. In the power sector, the Bank will continue to
support Powergrid, India’s national electricity transmission agency, which it has helped to grow
into a world-class institution.
Key Studies
The World Bank will also support some key multi-year, cross-sectoral studies on important
issues confronting policymakers, including poverty and exclusion, skills and job creation, low-
carbon growth, the challenges of rapid urbanization, and the management and development of
water resources.

Public Private Partnerships

The World Bank and IFC are collaborating to bring India cutting-edge expertise to deal with
emerging issues in Public-Private Partnerships (PPPs), tailored to India’s needs. While this work
has so far been the strongest in infrastructure - power transmission, roads, irrigation and rural
infrastructure, urban development - it will now be extended to agribusiness, health and
education, and renewable energy. The Bank and IFC are also working together on long-term
finance: through the proposed India Infrastructure Finance Co. Ltd. Project (IIFCL).

India's Power Sector

The inadequate availability of electricity continues to constrain India's sustained growth and
economic competitiveness. While India's GDP has grown at an average of about 8% per year
over the last six years, electricity generation/supply has grown at only an average of 5.3% per
year. Electricity shortages are estimated to cost the country around 7% of GDP.

Apart from certain central institutions such as the National Thermal Power Corporation (NTPC)
and Powergrid, most state power utilities operate without autonomy and under diffuse
accountability systems. They suffer from limited implementation capacities, a shortage of skilled
manpower, and poor financial standing due to inadequate tariffs that do not recover their costs.

While the Government of India, is working to strengthen the public sector's capacity, it is also
encouraging a paradigm shift to scale-up public-private partnerships (PPP) in the sector. So far,
only 15.5% of grid-based generation and 12% of distribution is currently handled by the private
sector.

Challenges

India's challenges in the power sector are significant. To meet these, the country needs to:

• Increase access to electricity: At least 400 million people (18-20 % of all

villages) still do not have access to electricity, and two-thirds of households
rely on biomass for cooking.
• Expand and diversify generation: Power shortages are the biggest
bottleneck to new investment and industrial growth. Some 60% of firms and
a large percentage of homes rely on captive or back up generation. Reported
energy shortages (11.1%) and peak energy shortfalls (over 11.9%) are higher
than 6 years ago, while actual shortages of electricity experienced on the
ground are even higher.
 • Improve efficiency and governance of distribution networks:
Technical and commercial losses amount to more than 40% of electricity
produced. Reducing these losses to 15% will generate additional revenues of
$4.4 billion per year.
• Manage growing carbon emissions: While India is a relatively low CO2
emitter by global comparison, its power sector accounts for 50% of its
emissions. With coal dominating India's energy mix - it presently accounts for
53% of installed capacity and
70-80% of power generation - current emissions of 0.5 billion tonnes per year
are likely to grow to 2.3 billion tonnes per year by 2031 under a business-as-
usual scenario.

Government Priorities

India's current grid-connected generation capacity is about 148,000 MW (63% coal; 25% hydro;
12% other). Under the 11th 5-Year Plan (2007-2012), the Government of India expects to
provide all its people with access to electricity by 2012. This would mean increasing its
generation capacity to at least 200,000 MW by 2012. To achieve this goal, the government is
focusing on:

Expanding Generation:

• Adding generation capacity of about 80,000 MW, including 16,000 MW of

hydropower.
• Increasing renewable energy from 4% of installed capacity to 10% by
2012, by expanding small and medium hydro, wind, and biomass.
• Increasing share of solar energy to 20,000 MW by 2020

Improving Energy Efficiency:

• Rehabilitating and modernizing about 27,000 MW of old coal-fired power

plants.
• Increasing the share of supercritical power plants to 20% of new
installations.

Managing Demand:

• Including in irrigated agriculture which accounts for 20-25% of total

electricity consumed.
• Adopting stringent and enforceable energy-efficiency standards for
appliances.

Improving quality of energy supply and service:

 • Expanding inter-regional transmission from 10,000 MW to 37,000 MW by
2012
• Upgrading and expanding distribution networks and management
information systems and trying to reduce technical and commercial losses
from more than 40% to 15%.

World Bank Support

The World Bank's program responds to the Government of India's development strategy for the
sector as underpinned by the Electricity Act 0f 2003 and various sector policies. The Bank's
lending to India's power sector is a modest $1 billion, compared to its requirements of $30 billion
per annum on average.

In the past, the World Bank has supported India to build its largest hydropower plant at Nathpa
Jhakri in Himachal Pradesh. It is now helping the country augment the supply of hydropower.
Support for the 412 MW run-of-the-river Rampur Hydropower plant on the Satluj river in
Himachal Pradesh is ongoing, and two other hydropower projects are in the pipeline - a 444 MW
project on the Alakananda river in Chamoli district in Uttarakhand, and the other at Luhri,
further downstream from Rampur in Himachal Pradesh.

The Bank is also supporting the efficient transmission and distribution of power to consumers. It
has helped Powergrid, the national power transmission agency, to emerge as a world class
agency. In September 2009, the Bank extended a loan of $1 billion to Powergrid to strengthen
and expand five transmission systems in the northern, western and southern regions of the
country. At the state level, improvements in transmission and distribution are being supported in
Haryana and Maharashtra. The Bank's program also supports a significantly lower carbon growth
path for India than under a "business-as-usual" scenario.

Considerable potential exists for cross-border energy trade with India's neighbors. The
development of hydropower on a regional basis could allow India and some of its neighbors to
address their water and energy security issues within a sound framework of water resources and
river basin management.

India: Priorities for Agriculture and Rural

Development

BACKGROUND

Although agriculture contributes only 21% of India’s GDP, its importance in the country’s economic,
social, and political fabric goes well beyond this indicator. The rural areas are still home to some 72
percent of the India’s 1.1 billion people, a large number of whom are poor. Most of the rural poor depend
on rain-fed agriculture and fragile forests for their livelihoods.
The sharp rise in foodgrain production during India’s Green Revolution of the 1970s enabled the country
to achieve self-sufficiency in foodgrains and stave off the threat of famine. Agricultural intensification in
the 1970s to 1980s saw an increased demand for rural labor that raised rural wages and, together with
declining food prices, reduced rural poverty.

Sustained, although much slower, agricultural growth in the 1990s reduced rural poverty to 26.3 percent
by 1999/00. Since then, however, the slowdown in agricultural growth has become a major cause for
concern. India’s rice yields are one-third of China’s and about half of those in Vietnam and Indonesia.
With the exception of sugarcane, potato and tea, the same is true for most other agricultural commodities.

The Government of India places high priority on reducing poverty by raising agricultural productivity.
However, bold action from policymakers will be required to shift away from the existing subsidy-based
regime that is no longer sustainable, to build a solid foundation for a highly productive, internationally
competitive, and diversified agricultural sector.

ISSUES AND CHALLENGES

Slow Down in Agricultural and Rural Non-Farm Growth: Both the poorest as well as the more
prosperous ‘Green Revolution’ states of Punjab, Haryana and Uttar Pradesh have recently witnessed a
slow-down in agricultural growth. Some of the factors hampering the revival of growth are:

• Poor composition of public expenditures: Public spending on agricultural subsidies

is crowding out productivity-enhancing investments such as agricultural research and extension,
as well as investments in rural infrastructure, and the health and education of the rural people. In
1999/2000, agricultural subsidies amounted to 3 percent of GDP and were over 7 times the public
investments in the sector.

• Over-regulation of domestic agricultural trade: While economic and trade reforms in the
1990s helped to improve the incentive framework, over-regulation of domestic trade has
increased costs, price risks and uncertainty, undermining the sector’s competitiveness.

• Government interventions in labor, land, and credit markets: More rapid growth of the rural
non-farm sector is constrained by government interventions in factor markets -- labor, land, and
credit -- and in output markets, such as the small-scale reservation of enterprises.
• Inadequate infrastructure and services in rural areas.

Weak Framework for Sustainable Water Management and Irrigation:

• Inequitable allocation of water: Many states lack the incentives, policy,

regulatory, and institutional framework for the efficient, sustainable, and equitable
allocation of water.

• Deteriorating irrigation infrastructure: Public spending in irrigation is

spread over many uncompleted projects. In addition, existing infrastructure has
rapidly deteriorated as operations and maintenance is given lower priority.

Inadequate Access to Land and Finance:

• Stringent land regulations discourage rural investments: While land distribution has become
less skewed, land policy and regulations to increase security of tenure (including restrictions or
bans on renting land or converting it to other uses) have had the unintended effect of reducing
access by the landless and discouraging rural investments.
 • Computerization of land records has brought to light institutional weaknesses: State
government initiatives to computerize land records have reduced transaction costs and increased
transparency, but also brought to light institutional weaknesses.

• Rural poor have little access to credit: While India has a wide network of rural finance
institutions, many of the rural poor remain excluded, due to inefficiencies in the formal finance
institutions, the weak regulatory framework, high transaction costs, and risks associated with
lending to agriculture.

Weak Natural Resources Management: One quarter of India’s population depends on forests for at
least part of their livelihoods.

• A purely conservation approach to forests is ineffective: Experience in India shows that a

purely conservation approach to natural resources management does not work effectively and
does little to reduce poverty.
• Weak resource rights for forest communities: The forest sector is also faced with weak
resource rights and economic incentives for communities, an inefficient legal framework
and participatory management, and poor access to markets.

Weak delivery of basic services in rural areas:

• Low bureaucratic accountability and inefficient use of public funds: Despite large
expenditures in rural development, a highly centralized bureaucracy with low accountability and
inefficient use of public funds limit their impact on poverty. In 1992, India amended its Constitution
to create three tiers of democratically elected rural local governments bringing governance down
to the villages. However, the transfer of authority, funds, and functionaries to these local bodies is
progressing slowly, in part due to political vested interests. The poor are not empowered to
contribute to shaping public programs or to hold local governments accountable.

PRIORITY AREAS FOR THE WORLD BANK SUPPORT

1. Enhancing agricultural productivity, competitiveness, and rural growth

Enhancing productivity: Creating a more productive, internationally competitive and

diversified agricultural sector would require a shift in public expenditures away from
subsidies towards productivity enhancing investments. Second it will require removing
the restrictions on domestic private trade to improve the investment climate and meet
expanding market opportunities. Third, the agricultural research and extension systems
need to be strengthened to improve access to productivity enhancing technologies. The
diverse conditions across India suggests the importance of regionally differentiated
strategies, with a strong focus on the lagging states.

Improving Water Resource and Irrigation/Drainage Management: Increase in multi-

sectoral competition for water highlights the need to formulate water policies and
unbundle water resources management from irrigation service delivery. Other key
priorities include: (i) modernizing Irrigation and Drainage Departments to integrate the
participation of farmers and other agencies in irrigation management; (ii) improving cost
recovery; (iii) rationalizing public expenditures, with priority to completing schemes with
the highest returns; and (iv) allocating sufficient resources for operations and
maintenance for the sustainability of investments.
Strengthening rural non-farm sector growth: Rising incomes are fueling demand for
higher-value fresh and processed agricultural products in domestic markets and
globally, which open new opportunities for agricultural diversification to higher value
products (e.g. horticulture, livestock), agro-processing and related services. The
government needs to shift its role from direct intervention and overregulation to creating
the enabling environment for private sector participation and competition for
agribusiness and more broadly, the rural non-farm sector growth. Improving the rural
investment climate includes removing trade controls, rationalizing labor regulations and
the tax regime (i.e. adoption of the value added tax system), and improving access to
credit and key infrastructure (e.g. roads, electricity, ports, markets).

2. Improving access to assets and sustainable natural resource use

Balancing poverty reduction and conservation priorities:

Finding win-win combinations for
conservation and poverty reduction will be critical to sustainable natural resource
management. This will involve addressing legal, policy and institutional constraints to
devolving resource rights, and transferring responsibilities to local communities.
Improving access to land: States can build on the growing consensus to reform land policy, particularly
land tenancy policy and land administration system. States that do not have tenancy restrictions can
provide useful lessons in this regard. Over the longer term, a more holistic approach to land
administration policies, regulations and institutions is necessary to ensure tenure security, reduce costs,
and ensure fairness and sustainability of the system.

Improving access to rural finance: It would require improving the performance of regional rural banks
and rural credit cooperatives by enhancing regulatory oversight, removing government control and
ownership, and strengthening the legal framework for loan recovery and the use of land as collateral. It
would also involve creating an enabling environment for the development of micro-finance institutions in
rural areas.

3. Strengthening institutions for the poor and promoting rural livelihood

Promoting Community-Based Rural Development: State Government efforts in scaling up livelihood

and community-driven development approaches will be critical to build social capital in the poorest areas
as well as to expand savings mobilization, promote productive investments, income generating
opportunities and sustainable natural resource management. Direct support to self-help groups, village
committees, user’s associations, savings and loans groups and others can provide the initial ’push’ to
move organizations to higher level and access to new economic opportunities. Moreover, social
mobilization and particularly the empowerment of women’s groups, through increased capacity for
collective action will provide communities with greater "voice" and bargaining power in dealing with the
private sector, markets and financial services.

Strengthening Accountability for Service Delivery: As decentralization efforts are pursued and local
governments are given more prominence in the basic service delivery, the establishment of accountability
mechanisms becomes critical. Local governments’ capacity to identify local priorities through participatory
budgeting and planning needs to be strengthened. This, in turn, would improve the rural investment
climate, facilitating the involvement of the private sector, creating employment opportunities and linkages
between farm and non-farm sectors .
Development Policy Lending to India’s States
The World Bank has helped support a number of state governments in their wide-ranging efforts
to improve their policies and institutions to achieve faster growth, better governance, and to
reduce poverty. As India has begun to deregulate its economy, these state-level reforms have
become especially important. The World Bank has, for example, played a supportive role in
Andhra Pradesh, Karnataka and Orissa. Seven development policy loans (DPLs) on concessional
terms have helped these states achieve fiscal consolidation, upgrade their investment climates,
improve governance, implement sectoral reforms, and better monitor and evaluate their anti-
poverty programs. As a result, these states have improved their performance in a number of
areas:

Reallocating Resources for Development:

States have been helped to achieve fiscal consolidation by improving tax policy and
administration; budget management; rationalization of expenditures; protection of social sector
spending; and better public financial management.

Accelerating Private Investment:

Improvements in the investment climate have led to a reduction in the cost of doing business; an
increase in competition, for example in agricultural marketing; and reduced distortions in the
land market. The World Bank has helped conduct investment climate assessments in individual
states and across India. These have helped pinpoint areas that need greater attention.

Promoting Reforms in Key Sectors:

Key sectors, such as power, can often become bottlenecks to faster all-round progress. Power
sector reforms in these states have included metering, reduction in transmission and distribution
losses; reducing cross-subsidies; and the unbundling and corporatization of power utilities.

Measuring and Monitoring Poverty:

States have been supported in the monitoring and evaluation of anti-poverty programs. Ongoing
programs have been carefully assessed for their effectiveness, as well as ways to improve
outcomes.

Initiating Broad Public Sector Reforms:

Improving government functioning has been at the heart of many reform programs. Key areas of
attention and support have included civil service reforms, improved accountability to citizens,
governance reforms, procurement reforms, and financial management reforms:

Promoting Better Governance:

Central and state governments have been helped to improve their delivery of public services
through broad-based governance reforms. World Bank-supported projects, as well as broader
collaborations with the Government of India, have helped to improve the procedures and
mechanisms for planning, spending, and accounting for the use of public money.

Reforming Financial Management:

Reforming Financial Management: Financial management systems have been strengthened to

ensure that projects have a wider and more sustainable impact. A major innovation has been to
involve communities and project stakeholders in overseeing the use of funds and monitoring
results. Efforts to promote greater transparency and the more cost-effective use of resources have
often been accompanied by more efficient procurement practices. Timely and reliable financial
reporting and auditing systems have helped to better monitor the use of project resources and
meet citizens’ demand for information.

Better public financial management leads to better results on the ground. New areas supported by
the World Bank include the more effective management and oversight of contingent liabilities
and cash management, and the adoption of e-Government procurement at the central and state
levels. Recent support has improved public expenditure management and oversight in states as
well as in municipal and Panchayati Raj Institutions (local, elected self-governance bodies).
Work across the entire public financial management system, including efforts relating to
improving treasury systems, internal audit, and procurement systems all rely heavily on learning
from international experiences that the World Bank has helped support.

Education in India

Universalization of good quality basic education:

Almost two decades of basic education programs have expanded access to schools in
India.The number of out of school children decreased from 25 million in 2003 to an estimated
8.1 million in 2009. Most of those still not enrolled are from marginalized social groups. Two
issues remain:
- Reaching some 8 million children not yet enrolled and ensuring retention of all students
till they complete their elementary education (Grade 8)
- Ensuring education is of good quality so it improves learning levels and cognitive skills.
Also, India still faces challenges in providing quality Early Childhood Development programs
for all children.
Expanding secondary education and improving quality:
Secondary education yields social and economic benefits but constitutes the primary bottleneck
in the education system today. Access, equity, management and quality all need major
improvement. Things to consider:
- While more than 95 percent of children attend primary school, just 40 percent of Indian
adolescents attend secondary school (Grades 9-12).
- Curriculum and teaching practices need upgrading to impart more relevant skills, such as
reasoning skills,problem solving,learning-to-learn, and critical and independent thinking.
- Public-private partnerships need to be expanded to tap into the potential offered by the 60
percent of secondary schools which are privately managed in India

Reforming vocational education and training:

More and higher quality vocational education is required to adequately prepare youth for current
jobs. This requires:
- Expanding vocational training in high-growth sectors to overcome existing skills shortages
- Setting common standards for training and reforming institutional governance for greater
private sector involvement so that training can dynamically adapt to changing labor market
demand.
- Ensuring accountability and good use of resources.

Expanding and Improving Technical and Tertiary Education:

India’s tertiary education system is one of the largest in the world with over ten million students.
Nevertheless, only 1 out of 10 young people has access to higher education, and this is
predominantly among the well-off. Tertiary education needs to be expanded, especially
among low and middle-income students. This will require reforms in the governance
structure of higher education, decentralization, and major investments in faculty
development.

Since 2000, the World Bank has committed over $2 billion to education in India. It also provides
technical support. Assistance includes:

Early Childhood Development: The World Bank supports India’s Integrated Child
Development Services with several operations [Phase II] and [Phase III]. These projects include
lessons learned from research and analysis such as Reaching out to the Child which recommends
decentralized and integrated approaches to early childhood development. The World Bank is also
doing research to explore improvements in service delivery using micro-planning and finding
synergies among various social programs for children.

Elementary/Primary education: Since 2003, the Bank has been working with Central and State
governments, along with development partners (UK's DFID and the European Union) to support
the Sarva Shiksha Abhiyan program. In Phase 1 (2003-2007) the Bank invested $ 500 million to
expand facilities and improve infrastructure, get children to school, and set up a system to assess
learning. In Phase 2 (2007-2012) the Bank will provide a total of $ 1.35 billion to expand access
to upper primary education, increase retention of all students until completion of elementary
education (Grade 8), and improve learning levels. In addition, Bank evaluations and research
provide pointers to further improvements. This includes studies on financing elementary
education, teacher absenteeism, instructional time and quality in primary education and the
impact of information sharing with village education committees, inclusive education for
children with disabilities, comparisons between public and private schooling in UP, AP, and MP,
and incentives to improve quality.

Secondary Education: The World Bank is in the process of preparing support to the
Government of India’s new centrally sponsored scheme for secondary education, Rashtriya
Madhyamik Shiksha Abhiyan (RMSA), for an estimated $ 650 million. This is largely based on
the analytical work completed on secondary education, published in 2009, which focused on
strategies to improve acccess, equity, management and quality. In addition, the Bank has
conducted research into the feasibility for expanded public private partnerships at the secondary
level, and has supported learning workshops on the role of information and communication
technologies at the secondary level.

Vocational education and training: Based on analysis of vocational education and training in
India, the World Bank is supporting efforts to upgrade this sector with a $280 million project. It
will upgrade 400 Industrial training institutes (ITIs) as centers of excellence.

Technical and Higher education: A $300 million operation is helping improve India’s
technical/engineering education was recently approved by the World Bank (TEQUIP II),
following the successful completion of TEQUIP I. This will finance major reforms in 130 +
competitively selected engineering institutions from around the country to improve quality of
education and meet the demands of a fast growing economy. Further, several reports examine the
increased demand for skilled workers in India and its importance for national competitiveness.

Support to States: World Bank Development Policy Credits in a few states support state level
education reforms through policy dialogue and research. Studies were undertaken in Karnataka.
The World Bank is currently engaged in Andhra Pradesh, Bihar, Himachal Pradesh and Orissa.
Actions supported under these Development Policy Loans include recruitment of additional
teachers, establishment of teacher management information systems, capacity-building for
school-based mass de-worming programs for improved student health, evaluations of teacher
training programs, and research into the most cost-effective interventions to improve student
learning.

India Hydropower Brief

India’s critical need for power

Severe power shortage is one of the greatest obstacles to India’s development. Over 40 percent
of the country’s people -- most living in the rural areas -- do not have access to electricity and
one-third of Indian businesses cite expensive and unreliable power as one of their main business
constraints.

India’s energy shortfall of 10 percent (rising to 13.5 percent at peak demand) also works to keep
the poor entrenched in poverty. Power shortages and disruptions prevent farmers from improving
their agricultural incomes, deprive children of opportunities to study, and adversely affect the
health of families in India’s tropical climate.

Poor electricity supply thus stifles economic growth by increasing the costs of doing business in
India, reducing productivity, and hampering the development of industry and commerce which
are the major creators of employment in the country.

Hydropower development -- a key government initiative

To boost economic growth and human development, one of the Government of India’s top
priorities is to provide all its citizens with reliable access to electricity by 2012. To ensure that
the uncovered 40 percent of Indian homes get electricity by 2012, and to serve rising demand
from those already being served by the power grid, the government estimates that the country
will need to install an additional 100,000 MegaWatts (MW) of generating capacity by 2012,
expanding grid-based generation to about 225,000 MW. Given that India added about 23,000
MW during the last Five Year Plan of 2002-2007, this will be quite a quantum jump.

The Government of India has decided to acquire an inreasing portion of this additional power
from the country’s vast untapped hydropower resources, only 23 percent of which has been
harnessed so far. India’s energy portfolio today depends heavily on coal-based thermal energy,
with hydropower accounting for only 26 percent of total power generation. The Government of
India has set the target for India’s optimum power system mix at 40 percent from hydropower
and 60 percent from other sources.

Advantages of hydropower

When developed in accordance with good environmental and social practices, hydropower plants
have the advantage of producing power that is both renewable and clean, as they emit less
greenhouse gases than traditional fossil fuel plants and do not emit polluting suspended
particulate matter (from the high ash-content of indigenous coal).

Hydropower plants can also start up and shut down quickly and economically, giving the
network operator the vital flexibility to respond to wide fluctuations in demand across seasons
and at different times of the day. This flexibility is particularly important in a highly-populated
country like India where household electricity demand is a significant portion of total demand
and this demand in concentrated in a short period of time (usually in the evening). As an
illustration, if the approximately 150 million households in India were to turn on two 100 watt
light bulbs at 7 pm, the power system would experience an instantaneous surge in demand of
about 30,000 MW! Today, this peak demand is often met by households turning on small
gasolene and diesel generation units, which, in addition to being polluting, are a serious health
hazard in congested areas. And, with rising wealth, households are switching on a lot more than
two light bulbs. Although hydropower plants are subject to daily and seasonal variations in water
flows (which affects the production of electricity at that point in time), they are not subject to the
fluctuations in fuel costs that trouble thermal power plants.
While hydropower plants have large up-front capital costs, they also have long and productive
lives, which significantly help reduce costs over time. For example, the Bhakra Nangal plant,
now more than 40 years old, has operating costs of only Rs 0.10 or US$ 0.002 per unit.
Hydropower plants are thus generally cheaper in the long run than natural gas-based plants,
which are constantly at risk from fuel price increases in the global market.

While India plans to develop mainly run-of-the-river projects, multipurpose hydropower plants
with water storage facilities can help manage critical water resources in an integrated manner by
serving as flood controllers as well as sources of irrigation and much-needed drinking water. The
Tehri Dam in Uttarakhand, for instance, which was commissioned in 2006, today caters to one-
third of the drinking water needs of Delhi, India’s capital.

Besides which, India’s hydro-resources are largely available in some of the least-developed parts
of the country and hydropower plants, if designed appropriately offer significant potential for
regional development and poverty alleviation. Hydropower projects that forge equitable systems
of benefit-sharing and implement targeted local area development can help local communities
improve the quality of their lives quite significantly.

Challenges of hydropower development

While hydropower plays an important role in the energy and development strategies of India,
such natural resource projects are inherently challenging. Environmental and social impacts are
inevitable but they can be mitigated. Hydropower development in India has seen significant
strides in understanding and addressing these impacts and the lessons learned from past
engagements are now being incorporated in project selection and design.

These lessons, coupled with suggestions from civil society, have resulted in changes to the laws
and regulations that govern hydropower development today. As a result, there have been
improvements on the ground, including greater public consultation with people affected by such
projects; better monitoring of the environmental and social aspects of projects; and
improvements in resettlement policy and practice. The Government has also ensured that the
methodology used by Central power agencies to select sites has improved, as has the capacity of
various hydropower developing agencies to deal with complexities in project identification,
engineering and design.

World Bank assistance

The Government of India has requested World Bank support for its plans to increase the
country’s hydropower capacity. It has also requested Bank assistance to help its power sector
agencies build on their recent achievements with the aim of attaining international standards in
hydropower design, construction and operation.

The World Bank aims to assist the Government of India in meeting its targets for hydropower
expansion in a sustainable manner. This entails not just ensuring financial, economical, and
technical soundness but also meeting social practices which have been developed by the industry
in recent years, and safeguarding environmental assets for future generations.
The Bank has been engaged in hydropower in India since the late 1950s. Several of its past
engagements have been difficult, with Bank support for a number of potential hydropower
projects, including the Sardar Sarovar project on the river Narmada, being cancelled before they
were commissioned. The two most recent Bank engagements, the Nathpa Jhakri and Koyna IV
projects which were completed in 2002 and 1998 respectively, have benefited from the lessons
(FAQs) of earlier hydropower development, including more socially and environmentally
sensitive safeguard policies.

Proposed hydropower projects in India

At the request of the Government of India, the World Bank is evaluating two hydropower
projects in the country -- the Rampur Hydropower Project downstream from Nathpa Jhakri on
the River Satluj in Himachal Pradesh and the Vishnugad Pipalkoti Hydropower Project on the
River Alaknanda in Uttarakhand. While the Rampur Project is in the project appraisal stage, the
Vishnugad-Pipalkoti project is in the early stages of preparation.

The World Bank is also assisting the state governments of Himachal Pradesh and Uttarakhand
adopt a river-basin approach in the planning and development of cascaded hydropower systems.
The two mountain states that have made hydropower generation a significant development
priority, have asked for Bank assistance in initiating a River Basin Development Optimization
Study that uses the Satluj and Alaknanda rivers as case studies. The Study aims also at forging
effective and equitable systems of cost-and benefit-sharing among all stakeholders, including
developers and operators, affected local communities, and host states.

Question: Why is the World Bank financing hydropower projects in India?

A key initiative of the Government of India is the development of hydropower to help meet the
country’s energy needs and provide all its citizens with access to electricity by 2012.

Hydropower being an indigenously-available, clean and renewable source of energy, the

Government of India is keen to use the largely untapped potential in this area – currently only 23
percent of India’s hydro potential is being utilized -- to provide the additional generating
capacity it needs.

Moreover, additional hydropower capacity is desirable in India’s generation mix, as it provides

the system operator with technically vital flexibility to meet the changes in demand which
typically affect a power network like that of India. The high density of household demand in
India means that the system can experience a peaking load of anything between 20,000 to 30,000
MegaWatts. This sudden spurt in demand can be best met by hydropower plants which have the
ability to start up and shut down quickly. Other sources of power cannot do this as economically.

Also, the Government of India is committed to developing world-class companies that are able to
design, construct, and maintain hydropower projects to international standards, and has requested
the World Bank’s support in this endeavor. In addition to helping with financing, the Bank
brings extensive experience in developing such projects across the world.
Question: Is the World Bank helping the country to plug the holes in the existing power
system before embarking on expanding hydropower capacity?

The World Bank is assisting India in improving its overall power transmission, distribution, and
management. For the last 10 years, the Bank has been working with several of India’s states to
reform their power sectors in order to help their electricity utilities reduce losses and improve the
efficiency of the system.

The Bank has also been working with Power Grid Corporation of India, which is a Central
government enterprise operating the national power grid, in order to strengthen the transmission
backbone of the country. We are also working on a project to improve the efficiency of existing
coal-fired power plants.

The Indian power sector has made significant improvements in the maintenance and operation of
its existing power systems. However, there is a limit to how much benefit in terms of additional
power can be had from just these improvements. With the demand for electricity continuing to
rise, the country needs also to look to additional and efficient generation.

Question: What lessons has the World Bank learnt from past experience in hydropower?

The Bank has been engaged in hydropower projects since the late 1950s. As important as they
are, hydropower projects can be complex and challenging. Along the way, the Bank together
with its partner governments and the international community has learned lessons about what
works and what doesn’t work in such projects.

Experience has shown that a number of things are essential for such projects. These include:

• Careful selection of the site and appropriate engineering design;

• Solid initial investigations, especially regarding geological conditions;
• Strong and competent implementing agencies;
• Continued and substantive consultations with stakeholders;
• Early attention to social and environmental aspects of projects, in particular, mitigating the
negative social and environmental impacts of the projects; and
• Appropriate financing and tariff design which are critical to the financial sustainability of
projects with long gestation periods.

These lessons have now been incorporated into the Bank’s operational policies and
implementation practices in the sector.

Question: How does the World Bank safeguard the interests of people affected by
hydropower projects?

The World Bank's environmental and social safeguard policies prevent and mitigate undue harm
to people and their environment in the development process. The effectiveness and development
impact of Bank projects and programs has increased substantially as a result of these policies.
Safeguard policies have often provided a platform for the participation of stakeholders in project
design, and have been an important instrument for building ownership among local populations.

For more details, please go to: Safeguard Policies

Question: Is the World Bank financing renewable sources of energy?

Yes; and the World Bank’s assistance for hydropower development is only a part of its strategy
to support renewable energy generation in India. It is also working with the Government of India
to facilitate the use of other sources of renewable energy.

An ongoing Second Renewable Energy project supports the work of the Indian Renewable
Energy Development Agency (IREDA) in this area. This is the second in a series of loans to
IREDA and finances small renewable energy projects such as solar, micro-hydro etc.

Question: Is the World Bank following the recommendations of the World Commission on
Dams (WCD)?

The World Bank supports the core values and strategic priorities spelt out in the WCD report.
The Bank also recognizes the WCD Report as a major contribution to defining issues around
dam development and identifying innovative ideas for improved evaluation and management.

As regards the 26 guidelines enumerated in the Report, the Chair of the WCD has explained that
these guidelines “offer guidance – not a regulatory framework. They are not laws to be obeyed
rigidly,” adding that individual governments or private developers may wish to test the
application of some of these guidelines in the context of specific projects. Consequently, the
World Bank works with countries and companies on the the hydropower projects it supports to
see how the relevant guidelines, along with the Bank's safeguards, can be applied to individual
projects in a practical, efficient and timely manner.

It may be added that the Government of India – like other governments that are building dams –
has not accepted the guidelines of the WCD as prescriptive regulations. The WCD guidelines are
among a growing set of best practices on sustainable hydropower development available today.
These sets, which include the International Energy Association's guidelines and the International
Hydropower Association's Assessment Protocol, all provide helpful advice and detailed
checklists for project preparation.

More on the World Bank’s response to the World Commission of Dams

Question: Does the World Bank agree with the WCD recommendation that a dam be built
only after local people have given their consent?

In the projects it supports, the World Bank requires that free and meaningful consultations with
directly affected and indigenous people be undertaken at the very outset. As an integral part of
several Bank safeguard policies, the views of these people must be carefully documented and the
results of consultations be taken into account in deciding whether to proceed with the project or
not.
However, the right of a sovereign state to decide how to use its natural resources in the best
interests of the nation as a whole cannot be infringed.

Rural Roads Open Up New Opportunities in

Villages
Challenge:

Till the year 2000, around 40 per cent of India’s 825,000 habitations lacked all-weather roads.
Nearly 74 % of the rural population was not fully integrated into the national economy.

In 2000, the Government of India launched the Prime Minister’s Rural Roads program
(PMGSY). The program aims to connect 180,000 villages nationwide by constructing 370,000
kms of all weather roads and upgrading another 370,000 kms of the existing rural road network.

The PMGSY program is now part of the Bharat Nirman initiative. Until end November 2007 -
the 7th year of the program's implementation - a total of 100,000 kms of roads had been built,
serving about 45 million people. Some 20,000 habitations have been connected so far.

To assist the government in building roads in difficult regions, the World Bank’s US$ 400
million Rural Roads Project is supporting the PMGSY in select districts of Himachal Pradesh,
Rajasthan, Jharkhand and Uttar Pradesh.

A second project – Rural Roads Project II for US$ 500 million – is under preparation. It will
support the building of rural roads in a few more states, including Bihar and Jammu and
Kashmir.

Results:

From the rough, mountainous terrain of Himachal Pradesh to the dry, rugged landscape of
Rajasthan, new roads are revitalizing the rural economy, raising incomes, and improving the
quality of rural life. Farmers now find it easier to take their produce to market in time, school
enrollment is on the rise, and families' access to health care has improved. Where roads have
been built, the rural economy has flourished. This has in turn encouraged some migrants to
return home to farm their lands or set up new businesses.

The Rural Roads Project has also brought about a paradigm shift in the way rural roads are
mapped, designed, monitored, and built:

Innovations:

People Make the Choices: A unique feature of the program is the ‘Transect Walk’ where
representatives of local communities walk the entire stretch of the proposed road so that their
concerns can be taken into account at the design stage itself. For instance, where the community
feels that a culturally sacred place, a heritage site, or an important seasonal water body will be
affected by the road, an alternative route is found. If the proposed route crosses a very poor
villager’s land, it is ensured that this land is not acquired.

Green Norms Established: The project has helped to lay down an environmental protection
code to ensure that trees are planted along the newly built roads, steep hillsides are stabilized, the
top soil is not affected, and debris from construction is not left behind after the work is done.

Quality Control: Before the project began, each state government had its own benchmarks for
the quality of construction. The project has helped to establish common standards for all states
across the country. The capacity of small local contractors to deliver works of the desired quality
has been enhanced. Government engineering staff have also been exposed to global best
practices in road construction.

Ongoing Maintenance Ensured: Contracts for road building have in-built 5 year maintenance
contracts that ensure that the contractor builds a good quality road at the outset and continues to
maintain it for five years thereafter.

Rural Water Supply

India has one of the largest rural water supply and sanitation reform programs in the world. Over
the years, the Government of India’s investments in the sector have brought water supply
infrastructure to more than 96 percent of the country's rural habitations - some 720 million
people. Sanitation coverage has also risen; some 35 percent of the population now have access to
toilets. But, while access to water supply and sanitation has increased, this has not always
translated into reliable, sustainable and affordable water and sanitation services for the people.

In the 1990s, recognizing that its traditional supply-driven approach in the sector was not
financially or operationally sustainable, the Government of India made a major policy shift. It
piloted a new demand-driven approach with World Bank assistance. In 2003, this pilot was
scaled up nationwide.

The reform program promotes the active participation of beneficiaries in the design and
implementation of RWSS projects. It decentralizes the delivery of services to local governance
institutions, provides for institutional reform and capacity building of governments and
communities, involves non-government organizations and alternative service providers, and
promotes cost recovery.

World Bank Support

Since the 1990s, over US $700 million of World Bank funding has helped India to provide more
than 18 million vulnerable people in the poorest rural areas with enhanced and sustainable access
to drinking water and sanitation services:
Transportation in India

India’s transport sector is large and diverse; it caters to the needs of 1.1 billion people. In 2007,
the sector contributed about 5.5 percent to the nation’s GDP, with road transportation
contributing the lion’s share.

Good physical connectivity in the urban and rural areas is essential for economic growth. Since
the early 1990s, India's growing economy has witnessed a rise in demand for transport
infrastructure and services.

However, the sector has not been able to keep pace with rising demand and is proving to be a
drag on the economy. Major improvements in the sector are therefore required to support the
country's continued economic growth and to reduce poverty.

Roads. Roads are the dominant mode of transportation in India today. They carry almost 85
percent of the country’s passenger traffic and more than 60 percent of its freight. The density of
India’s highway network -- at 0.66 km of roads per square kilometer of land – is similar to that of
the United States (0.65) and much greater than China's (0.16) or Brazil's (0.20). However, most
roads in India are narrow and congested with poor surface quality, and 33 percent of India’s
villages do not have access to all-weather roads.

Rural Roads-A Lifeline for Villages in India: Connecting Hinterland to Social Services and
markets

Railways. Indian Railways is one of the largest railways under the single management. It carried
some 17 million passengers and 2 million tonnes of freight a day in year 2007 and is one of the
world’s largest employer. The railways play a leading role in carrying passengers and cargo
across India’s vast territory. However, most of its major corridors have capacity constraint
requiring capacity enhancement plans.

Ports. India has 12 major and 187 minor and intermediate ports along its more than 7500 km
long coastline. These ports serve the country’s growing foreign trade in petroleum products, iron
ore, and coal, as well as the increasing movement of containers. Indian ports handled cargo of
650 million tonnes in year 2006-07, an increase of 14% over previous year. Inland water
transportation remains largely undeveloped despite India's 14,000 kilometers of navigable rivers
and canals.

Aviation. India has 125 airports, including 11 international airports. Indian airports handled
96million passengers and 1.5 million tonnes of cargo in year 2006-07, an increase of 31.4% for
passenger and 10.6% for cargo traffic over previous year. The dramatic increase in air traffic for
both passengers and cargo in recent years has placed a heavy strain on the country's major
airports. Passenger traffic is projected to cross 100 million and cargo to cross 3.3 million tonnes
by year 2010.
Transport infrastructure in India is better developed in the southern and southwestern parts of the
country.

Challenges

The major challenges facing the sector are:

• India’s roads are congested and of poor quality. Lane capacity is low – majority of national
highways are two lanes or less. A quarter of all India's highways are congested. Many roads are
of poor quality and road maintenance remains under-funded. This leads to the deterioration of
roads and high transport costs for users.
• Rural areas have poor access. Roads are significant for the development of the rural areas -
home to almost 70 percent of India's population. Although the rural road network is extensive,
some 33 percent of India’s villages do not have access to all-weather roads and remain cut off
during the monsoon season. The problem is more acute in India's northern and northeastern
states which are poorly linked to the country’s major economic centers.
• The railways are facing severe capacity constraints. All the country’s high-density rail
corridors face severe capacity constraints. Also, freight transportation costs by rail are much
higher than in most countries as freight tariffs in India have been kept high to subsidize
passenger traffic.
• Urban centers are severely congested. In Mumbai, Delhi and other metropolitan centers,
roads are often severely congested during the rush hours. The dramatic growth in vehicle
ownership during the past decade - has reduced rush hour speeds especially in the central areas
of major cities.
• Ports are congested and inefficient. Port traffic has more than doubled during the 1990s,
touching 650 million tonnes in 2006-07. This is expected to grow further to about 900 million
tonnes by 2011-12. India's ports need to significantly ramp up their capacity and efficiency to
meet this surging demand.
• Airport infrastructure is strained. Air traffic has been growing rapidly leading to severe
strain on infrastructure at major airports, especially in the Delhi and Mumbai airports which
account for more than 40 percent of nation’s air traffic.

Key Government Strategies

India’s Eleventh Five Year Plan identifies various deficits in transport sector which include
inadequate roads/highways, old technology, saturated routes and slow speed on railways,
inadequate berths and rail/road connectivity at ports and inadequate runways, aircraft handling
capacity, parking space and terminal building at airports. Government aims to modernize,
expand, and integrate the country's transport services. It also seeks to mobilize resources for this
purpose and to gradually shift the role of government from that of a producer to an enabler. In
recent years, the Government has made substantial efforts to tackle the sector’s shortcomings and
to reform its transport institutions. These include:

• Increasing public funding for transportation in its Five Year Plans.

• Launching the ambitious National Highway Development Program which has seven phases and
is expected to be completed by 2012. It includes improved connectivity between Delhi, Mumbai,
Chennai and Kolkata, popularly called the Golden Quadrilateral, in the first phase, North- South
and East- West corridors in phase two, four laning of more than 12,000 km in phase three, two
laning of 20,000km and six laning of 6,500 km respectively in phase four and five, development
of 1,000km of expressway in phase six and other important highway projects in phase seven.
Total expected investment is INR 2.2 trillion.
• Accelerated Road Development Program for the North East Region to provide road
connectivity to all State capitals and district headquarters in the North East region.
• Financing the development and maintenance of roads by creating a Central Road Fund (CRF)
through an earmarked tax on diesel and petrol.
• Operationalising the National Highway Authority of India (NHAI) to act as an infrastructure
procurer and not just provider.
• Improving rural access by launching the Pradhan Mantri Gram Sadak Yojana (Prime Minister’s
Rural Roads Program).
• Reducing the congestion on rail corridors along the highly trafficked Golden Quadrilateral and
improving port connectivity by launching the National Rail Vikas Yojana (National Railway
Development Program)
• The development of two Dedicated Freight Corridors from Mumbai to Delhi and Ludhiana to
Dankuni.
• Improving urban transport under Jawaharlal Nehru National Urban Renewal Mission
(JNNURM).
• Upgrading infrastructure and connectivity in the country's twelve major ports by initiating the
National Maritime Development Program (NMDP).
• Privatization and expansion of the Mumbai and New Delhi Airports and development of new
international airports at Hyderabad and Bangalore.
• Enhancing sector capacity and improving efficiencies through clear policy directive for greater
private sector participation. Large parts of the NHDP and NMDP are to be executed through
public private partnerships (PPP).

The World Bank has been a major investor in the transport sector in India. At present, it has ten
projects in transport portfolio which include seven state road projects and one each for national
highway, rural road and urban transport with total loan commitments for the transport sector in
India as US$3.48 billion. The main activities include:

• National Highway Development Project: The World Bank is financing highway construction
on the Lucknow-Muzaffarpur corridors. It is also involved in other sector activities such as
improving road safety.

• Rural Roads Program: The World Bank is supporting the Prime Minister's Rural Roads
Program (PMGSY) in providing all weather roads to villages in four states – Uttar Pradesh,
Jharkhand, Rajasthan and Himachal Pradesh.

• State Roads Projects: State Highways are being upgraded in the states of Andhra Pradesh,
Himachal Pradesh, Kerala, Mizoram, Punjab, Tamil Nadu, Orissa and Uttar Pradesh.
• Mumbai Urban Transport Project: The project aims to improve transportation in the
Mumbai Metropolitan Region by fostering the development of an efficient and sustainable urban
transport system - suburban rail, bus and link roads - and building effective institutions.

• Sustainable Urban Transport Project: The project aims to promote environmentally

sustainable urban transport in various cities and support implementation of India National Urban
Transport Policy (NUTP).

• In addition to the above, the Bank is involved in the preparation of various analytical works
(AAA) in the transport sector in India. These include:

• India Port Sector Study: The purpose of the effort is to review the demand-supply situation
with respect to the port sector, identify physical, financial and policy constraints to sector
development and suggest mitigation measures for the same.

• Indian Road Construction Industry Study: Given the large development programs being
launched to support the rapidly growing economy, the supply side constraints in terms of the
construction industry capacity are a serious cause of concern. The study reviews these limitations
and suggests mitigation measures. This study has produced two outputs titled "Indian Road
Construction Industry: Ready for Growth?" and "Indian Road Construction Industry - Capacity
Issues, Constraints and Recommendations".

While the Bank will continue to support the upgrading and development of roads and highways
in the country, it plans to scale up its involvement in railways and urban transportation.

IMF & GREECE CRISIS

IMF Approves €30 Bln Loan for Greece on Fast Track

IMF Survey online

May 9, 2010

• Combined €20 billion available immediately from joint EU-IMF financial

support
• IMF Executive Board unanimously approves package designed to stabilize
Greek economy
• Backs Greece with largest loan and exceptional, fast-track access

The International Monetary Fund (IMF) approved on May 9 a €30 billion three-year loan for
Greece as part of a joint European Union-IMF €110 billion financing package to help the country
ride out its debt crisis, revive growth, and modernize the economy.
"Today's strong action by the IMF to support Greece will contribute to the broad international
effort under way to help bring stability to the euro area and secure recovery in the global
economy," said IMF Managing Director Dominique Strauss-Kahn.

“It sends an important and clear signal that the international community is willing to do whatever
it takes to support Greece,” John Lipsky, First Deputy Managing Director, who chaired the
meeting of the IMF’s Executive Board, said.

The program approved by the IMF’s Board makes about €5.5 billion immediately available to
Greece from the Fund as part of joint financing with the European Union, for a combined €20.0
billion in immediate financial support. In 2010, total IMF financing will amount to about €10
billion and will be partnered with about €30.0 billion committed by the EU. The joint financing
means that Greece will not have to tap international financial markets until 2012, Lipsky said,
providing a breathing space for Greece to get its economy back on track.

“Today, the IMF has demonstrated its commitment to doing what it can to help Greece and its
people,” Strauss-Kahn said. “The road ahead will be difficult, but the government has designed a
credible program that is economically well-balanced, socially well-balanced—with protection for
the most vulnerable groups—and achievable. Implementation is now the key.”

The IMF’s Executive Board met to approve the front-loaded package, under which enabling
parliamentary measures have been approved up-front and financial support is fast-tracked, as
European finance ministers worked in Brussels on measures to prevent fallout from the Greek
crisis spreading to other parts of the European Union, and vowed to defend the euro.

Exceptional access

The Stand-By Arrangement, which is part of a joint package of financing with the European
Union amounting to €110 billion (about $145 billion) over three years, entails exceptional access
to IMF resources, amounting to more than 3,200 percent of Greece’s quota, and was approved
under the Fund's Emergency Financing Mechanism procedures.

“The Greek government should be commended for committing to an historic course of action
that will give this proud nation a chance of rising above its current troubles and securing a better
future for the Greek people,” Strauss-Kahn stated.

“Together with our partners in the European Union, we are providing an unprecedented level of
support to help Greece in this effort and—over time—to help restore growth, jobs, and higher
living standards.”

Addressing the crisis

The Greek government, which secured parliamentary approval for its program last week, has
designed an ambitious policy package to address the economic crisis facing the nation. Greece
faces a dual challenge. It has a severe fiscal problem with deficits and public debt that are too
high; and it has a competitiveness problem. Both need to be addressed for Greece to be placed on
a path of recovery and growth.

First, the government’s finances need to be sustainable. That requires reducing the fiscal deficit
and placing the debt-to-GDP ratio on a downward trajectory. Since wages and social benefits
constitute 75 percent of total government expenditure, this means that the public wage and
pension bills have to be reduced. There is hardly any other room for maneuver in terms of fiscal
consolidation.

Second, the economy needs to be more competitive. This means pro-growth policies and reforms
to modernize the economy and open up opportunities for all. It also means that inflation be
reduced below the euro area average, including by keeping wages and labor costs flat, so that
Greece can regain price competitiveness.

Why not restructure debt?

Asked why Greece should not opt for restructuring its debt, Lipsky said debt restructuring would
create more problems than it could potentially solve, with a default making things much worse.

• Restructuring debt would not help Greece’s capacity to grow. The type of fiscal and structural
reforms being put in place under the Government’s program are designed to do that – to bring
down costs, to make the labor market more flexible and to improve the business and investment
climate.

• The web of economic and political inter-linkages—including that Greek bonds are held by a
wide variety of private investors and public entities—severely complicates alternatives to the
program the government has put in place. Any perceived positive near term effects of a debt
restructuring need to be weighed against contagion effects.

• Most of the adjustment in Greece is needed to eliminate its large primary deficit (the deficit net
of interest payments). This is the main issue for Greece, not the level of the debt.

But prudent debt management is part of the government’s strategy and it is updating its tools to
ensure that risk is adequately managed.

Questions about conditions

Asked by reporters if the Greece Stand-By Arrangement marked a return by the IMF to earlier
times of a “laundry list” of conditions attached to loans, Lipsky said that these were well targeted
conditions that would help correct the imbalances in the Greek economy.

• The program is focused on Greece's two key problems: high debt and a lack of competitiveness.
Conditionality is very much focused on these issues.

• The Greek authorities have strong ownership and leadership and it is their program.
• The program includes measures to protect the most vulnerable, which are a critical component
to effective implementation.

Financial stability and recovery

In addition the program aims to safeguard Greece’s financial sector stability. As the banking
system goes through a period of deflation, which is expected to impact profitability and bank
balance sheets, the safety net for dealing with solvency pressures will be expanded by
establishing a Financial Stability Fund (FSF).

Real GDP growth is expected to contract sharply in 2010–2011, and recover thereafter with
unemployment peaking at nearly 15 percent of GDP by 2012. The frontloaded fiscal adjustment
in 2010-11 will suppress domestic demand in the short run; but from 2012 onward, improved
market confidence, a return to credit markets, and comprehensive structural reforms, are
expected to lead to a rebound in growth. Despite the difficulty in implementing the measures,
two recent opinion polls show majority support for the government’s program, which is designed
with fairness in mind.

Inflation is expected to remain below the euro average. The needed adjustment in prices is
expected to come from domestic demand tightening, both through fiscal adjustment and efforts
to moderate public wages and pensions, and other costs in the economy. Due to their
demonstration effects, private sector wages are also expected to moderate. This will help restore
price competitiveness.

IMF Role in Crisis Is Restrained

The International Monetary Fund's role in the continuing drama over Greece is limited—thus far
—to advising Athens how to reform its tax and budget systems so the government can persuade
markets and other euro-zone nations that its deficit-reduction program is valid, informed people
on both sides of the Atlantic say.

The IMF has said it is providing "technical assistance" but hasn't disclosed what that work
amounts to, leading to speculation that the fund is quietly putting together a rescue package for
Greece, or is providing the analysis behind the European Union's arm-twisting of Athens to slash
its deficit.

Dominique Strauss-Kahn, the IMF's managing director, says "the Europeans want to try to deal
with the problem themselves," but "if we are asked to do more, we will do more." He has talked
several times with Greece's prime minister.

The IMF isn't playing a covert role of that sort, those familiar with its work say. Rather,
European officials are insisting that they run negotiations with Greece. And while the IMF would
like to play a larger role, European politics are getting in the way.
On Friday, IMF Managing Director Dominique Strauss-Kahn said again that "the Europeans
want to try to deal with the problem themselves...[but] if we are asked to do more, we will do
more." During the crisis, Mr. Strauss-Kahn has talked several times with Greek Prime Minister
George Papandreou, an old ally in European socialist politics.

The EU's decision to keep the IMF on a short leash reflects pressure from European Central
Bank President Jean-Claude Trichet, French President Nicolas Sarkozy and Luxembourg's Prime
Minister Jean-Claude Juncker, who also chairs euro-zone finance ministers' meetings, say
European officials.

Their argument is that turning to the IMF would undermine the credibility of the euro and the 16-
nation euro zone. The IMF board includes the U.S. and China, and most euro-zone leaders don't
want outside powers to have a say in matters that affect Europe's common currency.

Mr. Juncker considers the euro zone a "single monetary zone that should be able to cope with
problems itself," a person close to him says. The ECB declined to comment.

German Chancellor Angela Merkel is more open to a deeper IMF role, says a person familiar
with her thinking. At the same time, she would insist on tough terms for any European aid for
Greece, the person says. Ms. Merkel believes the IMF has more know-how and experience at
setting up aid packages than the European Commission, the executive arm of the EU. But she has
acquiesced to other European leaders after finding herself in a minority, the person says. German
officials say her own finance ministry is against a bigger IMF role.

Further complicating the IMF-EU relationship is the French presidential election in 2012. Mr.
Strauss-Kahn has said he is considering a run, and he is now polling higher than Mr. Sarkozy. A
big role for the IMF in helping resolve the Greek crisis could help Mr. Strauss-Kahn. The IMF is
being especially circumspect in lobbying for a larger role for fear of being accused of political
meddling, say IMF insiders.

Thus far, the commission and the IMF have divided responsibilities. The EU is driving
negotiations over Greece's short-term deficit target and analyzing Greece's plans. The
commission has beefed up its analytic capabilities. Former IMF economist Istvan Szekely is now
chief economist of the commission department that handles fiscal issues.

The Greek finance ministry, though, is turning to the IMF for longer-term help, so it can meet
budget targets in 2011 and 2012. The IMF is advising Athens on how to design better tax-
collection systems to reduce rampant tax evasion. This year, the Athens government assessed a
€700 million ($953 million) surcharge on large businesses to make up for a revenue shortfall, the
latest stopgap measure to deal with such budget shortfalls.

The IMF is also helping Greece revamp its tax structure. Jeff Anderson, a European specialist at
the Institute of International Finance, a banking trade group, says Greece likely will have to raise
its value-added tax, which currently has a top rate of 19% and is riddled with exceptions, to
about 25%, a common rate in Western Europe. Hungary, which has been trying to shrink its
budget deficit as part of an IMF program, raised its VAT rate to 25% from 20% in July 2009.
Additionally, the IMF is advising Greece how to redesign its spending controls. The government
regularly underestimates expenditures for health care and the military. Fixing the problem
requires beefed-up budget controls and computer systems to track payments and try to reduce
graft. Greece's inability to manage its finances has been sharply criticized by the EU's statistical
authority, Eurostat.

Questions surrounding Greece's fiscal affairs have undermined faith in the country's ability to
deliver on its promises. That has ratcheted up pressure on the government from other EU
members negotiating with Greece and from markets wary about whether Greece can pay its debts
without a big aid package.

Ted Truman, a former international Treasury official in the Obama administration, says the EU
should use the IMF more fully—if only to give the electorate in Greece and elsewhere a political
target other than Brussels, Paris and Berlin. The Europeans are treating Greece like a "stepchild
who has misbehaved and are making an example of him for other children," he said. "The pan-
European message that conveys is politically disastrous," because it could turn popular sentiment
in the EU's economically weaker countries against tighter integration.