World Bank

WORLD BANK

Like the International Monetary Fund, the World Bank is a product

of the Bretton Woods system. Originally called the International

Bank for Reconstruction and Development (IBRD), it commenced

operations in 1946 with a membership of 38 states, including the

United States, Britain, and France. The initial task for the Bank was to

provide loans to the shattered economies of Europe. During the 1950s

and 1960s, as Europe began to recover from the Second World War, the

Bank turned its attention to Africa, Asia, and Latin America, offering

loans, guarantees, technical assistance, investment advice, and political

risk management to middle-income countries seeking to modernise

and develop. Over the past decade this commitment has extended to

East European countries as well. The Bank now has a membership of

more than 180 states and is headquartered in Washington, DC. It is one

of the key agencies of the United Nations.

Since the 1950s, four specialised organisations have been created

to assist the Bank in its work. In 1956, the World Bank created the

International Finance Corporation (IFC). This agency offers loans

to private developers (mainly multinational corporations) as a way

of attracting other private investment capital. The International

Development Association (IDA) was the second of the specialised

institutions created by the Bank. It came into being in 1960 to offer

long-term, interest-free loans to the poorest countries in the world.

In 1966, the International Centre for the Settlement of Investment

Disputes (ICSID) was set up to mediate disputes between governments

and investors. In 1988, the Multilateral Investment Guarantee

Agency (MIGA) was formed to insure private investments against

expropriation, coups, and other forms of political risk.

In principle, the main goal of the World Bank is laudable. It seeks to

reduce the level of poverty in the Third World. The Bank tries to live

up to this lofty ideal by targeting projects likely to stimulate economic

growth and raise the standard of living of the recipient country. Generally,

the Bank concentrates its efforts on large infrastructure projects

such as dams, roads, telecommunications networks, ports, and bridges.

But the IDA is involved in more modest projects such as water purification,

sanitation, health, family planning, agricultural production, and

the training of educators. It is important to note, however, that the

Bank lends only a proportion of the funds required for particular

projects. The remainder must be raised from private investors, taxation,

and capital markets.

The Bank itself is funded from a number of sources. It borrows fromcommercial institutions and it receives interest on its loans and investments.

The Bank also sells bonds to pension funds, insurance companies,

and multinational corporations. The most steady source of

income, however, has been the annual contributions of its member

countries. The United States is the largest donor, contributing more

than US$50 billion to the Bank since 1945.

The day-to-day running of the bank is handled by an Executive

Board consisting of 22 directors. Five of these are appointed by the

largest donor countries (the United States, Japan, Germany, Britain,

and France) and the rest are elected by the member countries. Above

the executive directors are the President and the Board of Governors.

The Board includes a representative from each of the member countries.

Voting power is proportional to contributions made. This gives

the United States the largest number of votes. The President of the

Bank is appointed by the executive directors, generally for a five-year

period.

The World Bank has many critics. At one extreme are those who see

it as a ‘wolf in sheep’s clothing’. From this vantage-point, the Bank is

primarily an institution for opening up Third World markets for the

First World rather than being devoted to reducing world poverty.

Today, indebtedness in the Third World is approaching US$2 trillion.

Some countries now have a lower per capita income than they did

before becoming involved with the Bank. In the early 1980s an estimated

130 million people were living in poverty, but by the beginning

of the 1990s the figure had risen to an estimated 180 million people.

These are grim statistics, especially given the enormous sums of money

that have already been loaned. One of the interesting things about

these figures is that they are used by critics on both the left and the

right of the political spectrum. The left highlight the growing poverty

in order to mount a case for the cancellation of Third World debt and

a redistribution of wealth from the rich to the poor countries. Those

on the right use the same statistics to discredit the Bank and to push for

its abolition, believing that economic prosperity can only come about

when the market is left to itself.

Other writers have been critical of the Bank’s ‘large project’ mentality,

arguing that it has failed to consider local issues such as the

environment and the role of women in development. The Bank has

attempted to address some of these issues in recent years. For example,

it has funded projects specifically designed to improve the position of

women in Third World countries.

One of the most controversial projects in recent years has been the

Bank’s involvement in a US$160 million loan to resettle nearly 58,000Han Chinese and Chinese Muslim farmers into traditional Tibetan

territory. The Tibetan community-in-exile argues that if the Bank

grants such a loan, it will be supporting a policy of ethnic cleansing.

However one views this particular case, it highlights the main problem

for the World Bank. It is an institution that exists to serve the interests

of states. As such, its commercial decisions will often prejudice the

needs of non-state groups. It is likely, therefore, that the Bank will

always be mired in controversy. It will never be able to live up to its

cosmopolitan ideals as long as it remains subordinate to the most

powerful states in the international system, particularly the United

States.