The World Bank

Introduction

The World Bank is as important as the IMF

Both institutions grew out of the Bretton Woods

Conference

Early History and

Administrative Structure

Great Britain and the US entered into the Bretton Woods

conference in July 1944 to discuss the creation of a
United Nations Bank for Reconstruction and
Development
Bretton Woods conference initially focused on the IMF
In response to the concerns of countries damaged by
the war (and less developed countries) a group was
finally constituted to work on the Bank
Focused on the relative roles of post-war
reconstruction and economic development
International Bank for Reconstruction and
Development (IBRD was the first of five
components of what was later to be called the
World Bank Group
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IBRDs Articles of Agreement

Purposes of the institution

Promote loans to assist in the reconstruction and

development of countries
Promote private foreign investment
Promote long-term balanced growth of international trade
and the maintenance of equilibrium in balances of
payments
Operate with due regard to the effects of international
investment on business conditions in the territories of
members

Membership is confined to countries that are

already members of the IMF
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IBRDs Articles of Agreement

Capital stock of the Bank is based on members

subscription shares
Based on the members quotas in the IMF
Upon joining the Bank, a member pays 10% of its
subscription
Remaining 90% is callable by the Bank

The funds from which the Bank makes loans come

from a number of sources
Members subscription shares
Retained earnings on investments
Bond issues (main source)
Loan repayments
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The Components of the World

Bank Group

IBRD

Major decision-making body is its Board of Governors

Each member appoints Governor and Alternate Governor
Executive Board conducts the day-to-day business of the
Bank
President chairs the Executive Board and is ultimately
subject to its control
Traditionally, President is US citizen appointed by the executive
branch of US government

Executive Director of IMF has traditionally been European

Major Bretton Woods players ensured their subsequent control of the
Bretton Woods institutions

Administrative Structure of the

World Bank

IBRD

IBRD opened in June 1946 with an initial subscription

capitalization of $10 billion
First set of loans went to France, the Netherlands, Denmark, and
Luxembourg

Funded by the United States and were used primarily to purchase US

exports

Tilt towards reconstruction was offset by the introduction of

the US Marshall Plan and European Recovery Program
Surpassed the resources of the World Bank and IMF
Made loans to Chile, Mexico, and Brazil
First bond issue in July 1947 quickly traded at a premium
over the offer price
In September 1959, the Banks subscription capital more
than doubled to $21 billion
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International Finance
Corporation

Created in 1956

Purpose is to encourage productive private

enterprise in less developed countries
Has its own staff, although some of these
individuals also hold positions in the Bank
Initially encountered difficulties because it was
excluded from equity investments
Later relaxed with an equity ceiling of 25 percent

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International Development
Association

Created in 1960
Soft loan version of the IBRD
Share staff and officers with IBRD
Together comprise what has come to be known as the World Bank
Really a special fund or window of the World Bank

Official purpose is to promote economic development and

raise living standards
By providing loans on terms that are significantly more flexible than
the IBRD

No-interest loans for long time periods (35-40 years) with significant
grace periods (10 years)

Primarily dependent on contributions from high-income

member countries
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International Center for Settlement

of Investment Disputes
Provides arbitration between foreign
investors and host country governments
Bank officials thought that the presence and
operation of the ICSID would support the
flow of FDI into developing countries

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Multilateral Investment
Guarantee Agency

Purpose is to encourage the flow of FDI to

developing countries
Engages in three kinds of activities
Issues guarantees against non-commercial risks in

recipient member countries

Insures against transfer restriction, expropriation, breach of
contract, and war and civil disturbance

Engages in investment marketing through capacity

building, information dissemination, and investment

facilitation
Provides a host of legal services to World Bank member
countries to support FDI
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Infrastructure Project Lending

and Poverty Alleviation Phases
In

its early years, the IBRD directed its

efforts toward large-scale infrastructure
projects

Projects funded included ports, railways,

flood-control, power plants, roads,

telecommunications facilities, and dams
Project lending was often accompanied by
program lending (or non-project
lending)

Helped finance the importation of intermediate

products necessary for infrastructure projects
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Infrastructure Project Lending

and Poverty Alleviation Phases

Lack of attention to the social realm

Some believed large-scale infrastructure was a

prerequisite for development

Other believed there was a reluctance to disturb
the capital markets with social-realm lending
Compromise the Banks triple-A bond rating

Bank observed that large capital investments

would be unlikely to be made by private
capital

Bank should fill in the gap

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Infrastructure Project Lending

and Poverty Alleviation Phases

Project-lending phase was tempered in the 1960s

Following severe droughts in South Asia, the Bank began to
pay more attention to agriculture in cooperation with the
United Nations Food and Agriculture Organization (FAO)
Began to venture into education in cooperation with the
United Nations Educational, Scientific and Cultural
Organization
Between 1961 and 1965, 76.8% of all Bank lending was for
electric power or transportation
6% was for agricultural development, and 1% for social service
investment

From 1968 to 1981 Robert McNamara was World Bank

President
Presidency coincided with the poverty alleviation phase for the World
Bank

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Recent Shifts in Direction

Broad themes emerging

Need to focus on people

Education and health lending
Private sector entrepreneurship
How the environment affects the poor
Participation
Partnerships with other agencies
Results
World Bank President James Wolfensohn
appears to have taken these matters on board
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