World Bank

The World Bank is the world's largest multilateral development institution. Each year the bank extends almost $20 billion in financial and technical assistance to countries throughout the developing world. The World Bank plays an especially important role in the social and economic progress of Latin American nations. Its loans and grants to governments and businesses throughout the region have contributed to economic growth, poverty reduction, the preservation of natural environments, and public sector reform.

FOUNDING AND PURPOSE

The idea of a World Bank was initially proposed at the July 1944 United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. The bank, which was formally established in 1945 and began operations in 1946, is headquartered in Washington, D.C., and has offices in more than one hundred countries throughout the world. Although technically a specialized agency of the United Nations, the World Bank has its own governing structure, membership, revenue sources, and administrative practices. Its operations are thus largely autonomous of United Nations control. While the World Bank's initial loans were designed to help rebuild the war-torn economies of western Europe, it soon shifted its focus to the developing nations in Latin America, Africa, and Asia.

World Bank loans are allocated almost exclusively to the governments of member states and must have an explicitly developmental purpose. At the same time, a small number of loans are also extended to private investors under government guarantees. The cumulative total of World Bank lending since its inception had surpassed $500 billion by 2007. The bank also offers technical and advisory services to member countries and training programs for local government officials.

STRUCTURE AND RESOURCES

The highest policy-making body of the World Bank is its Board of Governors. Each member nation of the bank is allowed to appoint one governor and one alternate. The Board of Governors meets annually to consider applications for new membership, review the overall policy orientation of the bank, and establish its lending strategies. The World Bank also has a twenty-four-member Board of Executive Directors who are responsible for day-to-day operations. The executive directors meet twice weekly to approve new loan applications and oversee the design and implementation of bank-sponsored activities. The president of the World Bank, who serves as chairman of the executive board, is responsible for the general management of the bank and oversees a staff of ten thousand. The president is nominated for a renewable five-year term by the member nation holding the largest shares in the bank (which has always been the United States) and is confirmed by the executive board.

The World Bank is organized into six regional bureaus: Latin America and the Caribbean, Africa, the Middle East and North Africa, South Asia, East Asia and the Pacific, and Europe and Central Asia. Each regional bureau is headed by a vice president. Within each region, the bank operates offices in most member countries. The country offices work with local governments to devise development plans, called Country Assistance Strategies, and assist in the implementation of bank-supported development projects.

Resources of the World Bank derive from a number of different sources. Member countries are assessed an annual subscription or quota, which is calculated to reflect each nation's relative economic strength. Voting power within the bank is based on these capital subscriptions. The larger industrialized countries hold the most subscriptions and thus exercise the greatest influence over general lending policies and decisions on specific loan applications. The World Bank also receives repayment of principal on previously extended loans and generates earnings through various investments. The largest source of revenue, however, comes from private capital markets. The World Bank sells medium- and long-term bonds on global financial markets.

AFFILIATED INSTITUTIONS

The World Bank has a number of affiliated institutions, which together are referred to as the World Bank Group. The oldest institution, established in 1945, is the International Bank for Reconstruction and Development (IBRD). Comprising 184 member countries, the IBRD remains the largest and most influential component of the World Bank Group. IBRD loans are extended at near-market interest rates and generally have a ten-to-twenty-year maturity period. Loans are allocated for projects that are designed to develop a nation's productive facilities and can be expected to generate sufficient funds for repayment. The IBRD also offers a small number of grants, risk management products, and advisory services.

In 1960 the World Bank established the International Development Association (IDA) to provide concessional loans to its poorest member states. IDA loans are interest-free, have longer maturity periods (usually thirty-five to forty years with a ten-year grace period), and carry a small service charge. Its resources come from the initial subscriptions of its members, periodic replenishments from its principal donors, and net income transfers from the IBRD. The IDA also provides more grants than the IBRD. The IDA, which currently has 165 member countries, also works to mobilize and coordinate economic assistance from donor countries and other international organizations.

The International Finance Corporation (IFC), which was established in 1956 and currently has 178 member countries, is the private sector affiliate of the World Bank. It provides loans and loan guarantees to businesses seeking to invest in the developing world. Loans from the IFC are typically at near-market interest rates with seven-to-twelve-year maturity periods. The IFC also makes equity investments in projects, usually investing in the early phase of a project and then selling off shares once the project becomes profitable. The IFC works to increase flows of private investment by bringing foreign and domestic partners together for joint ventures.

The Multilateral Investment Guarantee Agency (MIGA), which was formed in 1988 and has 167 member countries, provides insurance for foreign investors in the developing world against noncommercial losses. Its insurance products typically provide protection from expropriation of property, breech of contractual commitments, currency restrictions, or political violence. MIGA also provides technical and advisory services to improve the investment climate in the developing world and help member countries attract and retain foreign investment.

Lastly, the International Center for the Settlement of Investment Disputes (ICSID) was created in 1966 to help mediate conflicts between host governments and private foreign investors. ICSID, which has 143 member countries, provides facilities and procedures for the arbitration of investment disputes. Its central purpose is to attract greater foreign investment to the developing world by fostering an atmosphere of mutual confidence between states and foreign investors.

LENDING PROGRAMS TO LATIN AMERICA

The World Bank has traditionally played an important role in the economic and social development of Latin America. Roughly 25 percent of all World Bank loans since the mid-1950s have been allocated to nations in this region. Almost $6 billion in loans, grants, and credits are currently disbursed to Latin American nations each year. The bank's Regional Bureau for Latin America and the Caribbean currently manages bank-supported projects and programs in thirty-four member countries.

The World Bank's lending policies in Latin America have evolved considerably over time. During the 1950s and 1960s most loans were allocated for the development of the region's physical infrastructure. Bank officials argued that poor physical infrastructure was an impediment to attracting the private capital investment necessary for industrialization and economic growth. The World Bank sponsored large-scale projects in public utilities (hydroelectric dams, electrical power plants, water and sewage facilities), transportation (roads, railways, airports, and maritime ports), and communications (telephone services).

During the 1970s the World Bank's lending strategy in Latin America was revised to place greater emphasis on meeting the basic needs of poor communities. Although infrastructural investments had contributed to economic growth, critics charged that the benefits of growth accrued to a relatively narrow elite and largely bypassed the region's poor. In response to these concerns, the World Bank refocused its lending on smaller-scale projects in nutrition, preventative health care, primary education, public housing, and rural development. Whereas infrastructural projects continued to be supported, social investments became a larger part of the bank's lending portfolio in the region.

POLICY-BASED LENDING

The World Bank's strategy in Latin America was again altered in the 1980s. During this period many nations in the region were experiencing severe economic difficulties, including substantial current accounts deficits, deteriorating foreign reserves, and the accumulation of large external debts. The bank argued that any gains realized from individual development projects were quickly eroded by the region's generalized economic downturn. Working closely with its sister institution, the International Monetary Fund (IMF), the bank assumed a leading role in helping shape the domestic and foreign economic policies of the region.

The most significant innovation was the introduction of policy-based lending. The bank worked with Latin American governments to enact macro-economic reforms designed restore fiscal health and economic stability. "Structural adjustment" loans were granted to governments willing to cut public sector spending, lessen regulatory constraints on the private sector, reform tax structures, privatize state-owned industries, and integrate their economies in global markets through the promotion of exports and removal of barriers to foreign investment.

SOCIAL INVESTMENTS

Policy-based lending has been a controversial component of the World Bank's work in Latin America. Supporters contend that these reforms have helped balance government accounts, increase foreign exchange earnings, and lower inflation rates. For critics, structural adjustment has only intensified the region's already severe inequalities. The poor and working classes, they argue, are most adversely affected by cutbacks in government social programs, removal of price controls on basic necessities, and the loss of public sector employment.

In the mid-1990s the World Bank again revised its policies in Latin America. The bank's Heavily-Indebted Poor Countries Initiative, first launched in 1996, has granted debt relief to some of the region's poorest countries, including Bolivia, Guyana, Honduras, and Nicaragua. The World Bank has also altered its lending strategies. Although structural adjustment lending continues to be part of the bank's portfolio, it has sought to offset the social costs of economic reform through new investments in basic services. Support for nutrition, primary health care, education, employment training, and rural development projects is explicitly designed to compensate those groups most adversely affected by economic reform.

The provision of basic health care has been especially prioritized by the World Bank. The bank supported projects in maternal and child health in Argentina, Brazil, Guatemala, and Paraguay, the extension of health care to remote rural communities in El Salvador and Mexico, and an immunization project in Bolivia. The bank has also allocated considerable resources to prevent the spread of HIV/AIDS in Brazil and the Caribbean. Improvements in education have also been prioritized. The World Bank has supported education reform projects in Brazil, Guatemala, and Uruguay. Basic education projects in El Salvador, Grenada, and Paraguay helped reduce repetition rates in primary and secondary schools, and primary education projects in Argentina and Mexico helped increase completion rates in elementary education in some of these nations' poorest regions.

The World Bank has also directed more of its resources toward meeting the particular needs of women and ethnic minorities. The bank has supported efforts to combat gender-based discrimination and enhance women's participation in economic development. Nutrition, health care, and education programs that specifically meet the needs of girls and women have been supported in Brazil, Mexico, Central America, and the Andean region. The World Bank has also targeted its loans toward indigenous and Afro-Latino communities in the region. The bank has supported projects in Central America and the Andean region that are designed to enhance economic opportunities for indigenous groups. The bank has also supported education and job-training programs for people of African descent in Brazil, Colombia, Guyana, Panama, Venezuela, and most Caribbean nations.

NATURAL ENVIRONMENTS

The World Bank is working to preserve natural environments in Latin America. Although environmental needs were not a priority in the early decades of its operations, and projects were sometimes faulted for damaging the environment, the bank has now become more committed to sustainable development. It has supported a range of environmental initiatives in the region. The bank has funded projects to protect the region's water resources, including coastal and marine systems, dams and reservoirs, groundwater, river basins, and watersheds. In addition, it has supported programs to conserve the Amazon rainforest. In Mexico and Costa Rica bank-supported projects have helped indigenous communities improve the management and conservation of their forest resources. The bank is cooperating with Mexico and six Central American countries to protect the Mesoamerican Biological Corridor. It has funded biodiversity protection projects in Brazil, Bolivia, and Ecuador. The bank's Clean Air Initiative for Latin American Cities focuses on improving urban air quality in Bogota, Buenos Aires, Caracas, Lima, Mexico City, Santiago, and São Paulo. Bank officials have also worked with local officials throughout the region to establish regulatory and institutional frameworks for sustainable environmental management.

PUBLIC SECTOR REFORM

The World Bank has become heavily involved in the promotion of public sector reform in Latin America. This is another area in which the bank was faulted in the past. World Bank loans, critics charged, supported authoritarian governments in the region. By strengthening these regimes, assistance from the bank only reinforced repressive political structures and economic inequalities. World Bank officials have acknowledged that project failure was often caused by political and administrative weaknesses in recipient countries.

Thus the World Bank has placed public sector reform and "good governance" near the top of its regional agenda. Bank officials now argue that the success of development assistance largely depends on the quality of governance in recipient countries. Social and economic progress is not possible without impartial, effective, and reliable public sector institutions. The World Bank placed particular emphasis on enhanced public sector management. It has supported projects to strengthen civil services, reform public enterprises, and upgrade financial management systems. An Institutional Reform Project in Bolivia, for example, established performance-based incentives for the civil service. In Argentina, the bank supported ministerial reorganization that strengthened administrative capabilities and improved the management of information systems. The World Bank has also worked to reform judicial institutions in the region. Technical assistance was provided to reform courtroom management systems in Argentina, Ecuador, and El Salvador, increase administrative efficiency in Bolivia, Guatemala, and Honduras, streamline judicial procedures in Colombia and Venezuela, and train judges and court personnel in Peru. The World Bank has also worked to enhance public sector accountability and transparency. It has supported a number of projects to improve auditing, budgeting, accounting, and internal oversight procedures. The bank has worked to improve access to information about government expenditures and ensure open bidding processes for all public contracts. This includes projects to modernize public auditing systems in Bolivia, enhance procurement and debt management in Guatemala, and establish integrated financial management systems in Argentina, Chile, Ecuador, and Honduras.

CONCLUSION

The World Bank has long played a significant role in the economic and social progress of Latin America. While the bank's early emphasis on infrastructural projects and private enterprise development remains an important component of its lending strategy, its agenda has expanded to include a much wider range of economic, social, and environmental programs. Expansion of the bank's lending portfolio reflects both in-house learning from past experience and a response to outside criticism. It is placing greater emphasis on meeting the basic needs of poor communities, enhancing gender and ethnic equality, preserving natural environments, and reforming public administration. Given the bank's rapidly expanding development agenda for Latin America, and the considerable resources at its disposal, it will continue to play a major role in the region's social and economic development well into the twenty-first century.

See alsoEconomic Development; International Monetary Fund (IMF); United Nations.

BIBLIOGRAPHY

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                                           Francis Adams