World Bank Group

views updated May 18 2018

World Bank Group

1818 H Street, North West
Washington, District of Columbia 20433
Telephone: (202) 477-1234
Fax: (202) 477-6391
Web site:

Private Institution
1946 as the International Bank for Reconstruction and Development
Employees: 9,000
Total Assets: $23 billion (1999)
NAIC: 522293 International Trade Financing; 52211 Commercial Banking

The World Bank Group, created towards the end of World War II, provides loans, soft loans, and guarantees for development projects around the world. A multilateral institution, it calls five billion people its clients; most of them live on less than two dollars a day. Its mix of financial support and advice is credited, for example, with saving Indias agriculture system after World War II. The World Bank derives its support from 180 member nations and pitches bond offerings to the worlds capital markets. Critics question the necessity of its leagues of highly-paid advisers and the social and environmental responsibility of some of its development projects. At the beginning of the millennium, the group was concentrating on harmonizing its private and public sector efforts into comprehensive Country Assistance Strategies.

World War II Origins

The International Bank for Reconstruction and Development was the first Multilateral Development Bank. Before World War II had ended, Harry Dexter White, assistant secretary of the U.S. Treasury, and the eminent British economist John Maynard Keynes had been among those conceptualizing an international institution to stabilize exchange rates and provide a source of financing for reconstruction and development among countries ravaged by the war.

Forty-four countries sent representatives to Bretton Woods, New Hampshire, to discuss the bank in July 1944. The banks sister institution, the International Monetary Fund (IMF) was also created at Bretton Woods. The new bank received most of its funds from the New York investment community. However, at United States insistence, the bank was headquartered in Washington, D.C. The United States also insisted that executive directors have full-time, competitively salaried positions. The United States dominated the multilateral institution from the beginning: it provided one-third of the start-up capital.

Thirty-eight countries were members of the bank, which had an initial staff of 72. The U.S. government picked Eugene Meyer, a 70-year-old retired investment banker, to lead the new institution, which officially opened on June 25, 1946. Meyer had previously been involved in European famine relief and had extensive government experience. However, he resigned six months later after a dispute with U.S. executive director Emilio Collada, who was pressing for a stronger board. New York lawyer John J. McCloy succeeded Meyer as president. He emasculated the board and staffed management with New York cronies, like Chase Banks Eugene Black, who replaced Collada.

The bank made its first, general reconstruction loans to France, the Netherlands, Denmark, and Luxembourg in 1947. The French loan of $250 million was the largest it would ever make, in real terms. As the U.S. government shouldered more of the burden for reconstruction under the Marshall Plan, launched in June 1947, the IBRD looked towards lending development funds to Third World countries. Physical infrastructure accounted for most of its lending in this area. The IRBDs bond issues began showing consistent profits in 1948, earning the bank an outstanding credit rating. That year also marked the first loan to a developing country$13.5 million for a hydroelectric project in Chile.

When McCloy left the bank after two years to accept an ambassadors post in Germany, Black was named president. Robert Garner, whom McCloy had recruited from General Foods, remained vice-president. Under Black, the bank specialized in more focused project lending. It was then lending about $400 million a year.

The banks first bond offering abroad, worth £5 million, came in London in 1951. That year, the bank negotiated with the British and Iranian governments over oil issues. Later, it helped resolve the Indus water dispute between India and Pakistan. It also unsuccessfully attempted to secure Western funding for the Aswan Dam project in Egypt. This type of involvement led to the creation of the International Center for the Settlement of International Disputes (ICSID) in 1966.

The bank was reorganized on geographical lines in 1952. Three years later, it founded the Economic Development Institute, a staff college. By this time the bank had 500 employees.

Although the IBRDs managers sought to promote private enterprise, they needed to obtain government guarantees of any loans they made to the private sector. The International Finance Corporation (IFC) was created in 1956 specifically to make private sector loans. Robert Garner served as its first president.

Soft Loans in the 1960s

The World Bank Group first came into being in the 1960s. Although the success of the IBRD allowed it to more than double its authorized capital to $25 billion in 1959, its services were out of reach of the many developing nations unable to pay commercial rates. The International Development

Association (IDA) was established in 1960 specifically to handle assistance to such high-risk borrowers. This program of concessional lending had been brewing for several years before Senator Mike Monroney was able to sell the Eisenhower administration on it. It gave its first credit to Honduras for highway construction. (The IDAs funds are periodically replenished by more than 30 of the richest nations and by World Bank profits.)

George Woods, another New York banker, became president in January 1963. His prime interest was macroeconomics, and he favored intervention in the politics of recipient nations. However, agricultural (land ownership) reform was a touchy subject among such newly-established governments, and remained a stumbling block in efforts to reduce poverty in the mostly rural Third World. Under Woods, the IFC became responsible for industrial loans. He also led the IFC to cooperate with United Nations agricultural and educational agencies as never before.

Robert McNamarathe former auto executive who had helped shaped U.S. policy during the Vietnam Wartook over the IBRD presidency on April 1, 1968. He greatly increased the rate of the banks lending and focused efforts on finding ways to help owners of small farms become more productive; such agricultural improvements proved more successful in Asia than in Africa. McNamara also boosted the banks search for capital beyond the U.S. market and increased support for research activities. An early 1970s reorganization was also on McNamaras agenda.

Oil Crises in the 1970s

With the Yom Kippur War and the corresponding quadrupling of oil prices by the Organization of Petroleum Exporting Countries (OPEC), 1973 was a year that shaped economic policies around the world. OPEC nations, newly flush with cash, set up their own sources of development financing. Further, the World Bank felt impelled to take measures to offset higher fuel prices in oil-importing developing countries while the Ford administration capped its loans at $5.8 billion.

Population control and pollution control were two new areas of funding in the early 1970s. In the last half of the decade, the bank became more involved in urban development. It also softened its reluctance to deal with government-owned businesses, instead evaluating the independence of management as a criterion for investment.

However, by this time, the Peoples Republic of China had become involved in World Bank programs. The banks low-key approach produced much success in that country, which used IDA loans for agriculture and education projects while oil wells were financed with IBRD loans. Nations eligible for IDA loans were those with per capita incomes of less than $750 per year (the majority of this population was concentrated in China and India). Agricultural loans, called the key to improving the living standards of the bulk of the poor, accounted for a third of IBRD/IDA loans. Unfortunately, inflation reduced the real value of IDA loans by nearly 25 percent in 1977.

Company Perspectives:

The World Bank is the worlds largest source of development assistance, providing nearly $30 billion in loans annually to its client countries. The Bank uses its financial resources, its highly trained staff, and its extensive knowledge base to individually help each developing country onto a path of stable, sustainable, and equitable growth. The main focus is on helping the poorest people and the poorest countries, but for all its clients the Bank emphasizes the need for: investing in people, particularly through basic health and education; protecting the environment; supporting and encouraging private business development; strengthening the ability of the government to deliver quality services, efficiently and transparently; promoting reforms to create a stable macroeconomic environment that is conducive to investment and long-term planning; focusing on social development, inclusion, governance, and institution building as key elements of poverty reduction.

The Bank is also helping countries to strengthen and sustain the fundamental conditions they need to attract and retain private investment. With Bank support both lending and advicegovernments are reforming their overall economies and strengthening banking systems. They are investing in human resources, infrastructure, and environmental protection, and thus enhancing the attractiveness and productivity of private investment. Through World Bank guarantees and MIGA s political risk insurance, and in partnership with IFCs equity investments, investors are minimizing their risks and finding the comfort to invest in developing countries and countries undergoing transition to a market-based economy.

After another round of oil price increases, interest rates rose dramatically at the end of 1979, trapping the bank in fixed rates set when credit was relatively inexpensive. The bank moved to issue loans with floating interest rates in 1982. Otherwise, its terms remained inflexible, fortified with cross-default clauses. The bank began to press for more reforms among borrowing nations through structural adjustment loans (SALs), mostly in Africa and Latin America.

Debt Crisis in the 1980s

The Reagan years were ones of heavy defense buildup and deficit spending. Commercial banker A.W. Clausen succeeded McNamara upon his retirement in 1981. He was soon confronted with the Latin American debt crisis. A few years later, former U.S. Senator Barber Conable became the first professional politician to lead the World Bank in 1986. One of his first tasks was to trim the budget and streamline the staff somewhat. However, managers were then freed to hire their subordinates right back. Some 300 workers received golden handshakes in an exercise that cost the bank $200 million. In spite of the uncertainty these measures produced, Conable won the support of both employees and shareholders: in 1988, the IBRD landed its largest ever general capital increase (GCI) from the U.S. government.

Conable attempted to shift the banks focus from infrastructure to business ventures. One area of concern was the relatively low levels of private sector investment of IFC-financed projects. China increased pressure on foreign investors in the mid-1980s and Yugoslavia, the IFCs largest borrower, saw its private sector production collapse. The Wall Street Journal reported that many borrowers that the IFC had reported as privately-owned in fact had substantial government ownership.

Poverty per se again became a leading part of the banks agenda, as defined by such measurements as daily caloric intake. Broadly-defined environmental concerns also became increasingly important as the bank struggled to harmonize its efforts with nongovernmental organizations (NGOs). However these were difficult to square with development enterprises such as those in Thailand that critics alleged produced deforestation.

The Multinational Investment Guarantee Agency (MIGA) was established in 1988 to encourage private investment in the Third World by attenuating some of the risks of operating in politically and economically unstable environments. Although its charter stated it should be apolitical, by this time the question of governance issues dominated World Bank thinking about lending in Africa, and work in China was suspended following the Tiananmen Square massacre. The IBRD made nominally its largest ever loan to Mexico in 1990: $1.26 billion to support debt reduction. The debt crisis had finally subsided by this time, helped in part by falling interest rates.

Competing in the 1990s

Conable stepped down in 1991. His successor, Lewis Preston, was an eminent commercial banker. Upon taking over, Preston set up a management structure similar to the one at J.P. Morgan. By this time, the bank had begun lending to newly-liberated Eastern Europe and Russia itself.

As the bank approached its golden anniversary, a new headquarters was under construction. Meanwhile, pundits rallied under the slogan Fifty years is enough. The Wapenhans Report in 1992 criticized the banks bias towards project lending, while two years later a team of outside observers criticized one of the banks dam projects on Indias Narmada River. Many believed the World Bank was simply too rich and too bloated. It employed 6,000 high-paid staff (at $150,000 a head, according to The Economist) and 1,000 consultants, only a fraction of them based inside poor countries. By 1995, the World Bank had more than 9,000 employees and a $1 billion payroll. While administrative expenses grew 60 percent in the mid-1990s, loan disbursements were flat.

The United States considered changing the articles of the IBRD to allow it to lend directly to the private sector to help the group as a whole meet a target of making half its loans in the private sector, which was becoming more important in the post-Communist world. However, many at the World Bank were uneasy about making the institutions top credit rating susceptible to the additional commercial risks of lending to private enterprises. The IFC, led by Sir William Ryrie, was then calling for an additional $1.3 billion in capital to maintain its annual growth rate.

South Korea became the first country to progress from IDA borrowing all the way to becoming a donor. Emerging markets as a whole were attracting unprecedented amounts of private capital, $244 billion in 1996 versus 1990s $44 billion. This entrepreneurial interest in development provided some competition to the World Bank itself, which saw its market share fall from 50 percent to ten percent in just a few years.

The U.S. Congress resisted the IDAs requests for capital replenishment. Other rich countries followed suit, claiming hard times of their own. The political risk insurance of MIGA proved very popular, and that agency also strained for additional capital to meet demand. The IFC, however, saw its total financing nearly double to $8 billion between 1994 and 1996. It had a harder time obtaining sovereign guarantees on infrastructure projects as local governments were taking over more of them.

Key Dates:

World Bank founded along with sister institution, the International Monetary Fund.
International Finance Corporation created to support private ventures.
International Development Association created to give soft loans to very poor countries.
The new Multilateral Investment Guarantee Agency insures against political risks.
South Korea becomes the first to transform from IDA borrower to World Bank donor.

Savvy Australian-born investment banker James D. Wolfensohn became the banks president in June 1995. He inherited a slew of challenges. At least one former World Bank executive criticized the institution for diluting its strengths in infrastructure development in favor of boutique investments. By the late 1990s, the emerging markets investment bonanza was over, making private capital prohibitively expensive again for World Bank clientele.

Principal Operating Units

International Bank for Reconstruction and Development; International Development Association; International Finance Corporation; Multilateral Investment Guarantee Agency; International Centre for Settlement of Investment Disputes.

Principal Competitors

European Bank for Reconstruction and Development; J.P. Morgan & Co.; Salomon Brothers International; CS First Boston; Emerging Markets Partnerships; Darby Overseas Investments.

Further Reading

Adkisson, Richard V., Review of Bankers with a Mission: The Presidents of the World Bank, 1946-91, by Jochen Kraske, William H. Becker, William Diamond, and Louis Galambos, Journal of Economic Issues, March 1998, pp. 256-57.

Bovard, James, World Bank Units Lip Service to Private Sector, Wall Street Journal, June 21, 1988, p. 1.

Bray, Nicholas, World Bank Arms New General Seeks to Deploy All AssetsPeter Woicke Will Leverage Expertise, Prestige, Funds of International Finance, Wall Street Journal, October 12, 1998, p. 16A.

Crane, David, New World Bank Head Not an Ordinary Banker, Toronto Star, October 12, 1995, p. 2D.

Fidler, Stephen, U.S. Seeks to Raise World Banks Private Profile, Financial Times, May 1, 1991.

Fitzgerald, Peter F., Money for Power, China Business Review, November/December 1993, p. 30.

Gopinath, Deepak, Identity Crisis, Infrastructure Finance, September 1997, pp. 27-34.

Harris, Anthony, World Bank Strives for Agility in the Markets, Financial Times, April 14, 1988.

A Job for Atlas and Hercules Combined, The Economist, March 30, 1991, p. 71.

Kapur, Devesh, John P. Lewis, and Richard Webb, eds., The World Bank: Its First Half Century, 2 vols., Washington, D.C.: Brookings Institution, 1997.

Keefe, Victoria M., The World Bank Group as Private-Sector Catalyst, Journal of Project Finance, Winter 1996, pp. 46-52.

Kraske, Jochen, et al., Bankers with a Mission: The Presidents of the World Bank, 1946-1991, Oxford: Oxford University Press, World Bank, 1996.

Lawrence, Richard, World Bank Eases Access for Business, Journal of Commerce, August 14, 1996, p. 1A.

Mendelsohn, M.S., Changes at the World Bank, Banker, August 1982, p. 35ff.

, IDA: Gift-Giver of the World Bank; Cut in U.S. Aid to Soft-Loan Affiliate Could Hurt Poor Nations, American Banker, September 28, 1983, p. 1.

Millner-Adams, Michelle, The World Bank: New Agendas in a Changing World, London and New York: Routledge, 1999.

Murphy, Craig N., Review of The World Bank Group: A Guide to Information Sources, by Carol R. Wilson, Business History Review, Winter 1992, p. 827.

Owen, Henry, The World Bank: Is Fifty Years Enough? Foreign Affairs, September/October 1994, p. 97.

Rowen, Hobart, World Bank to Widen RoleWith Blessings from Carter, Washington Post, September 19, 1977, p. 14D.

Rowley, Anthony, Urgently Needed: New Financial Architecture, Banker, October 1998, pp. 28-30.

Sankaran, Sundaram, The Humane Conversion of Barber Conable, Asian Finance, September 15, 1991, p. 56.

U.S. versus the World Bank, Financial Times, May 13, 1991.

Wolfensohn, James D., We Must Have Sustainable Prosperity: The Challenge of Inclusion, Vital Speeches of the Day, October 15, 1997, pp. 5-9.

World BankFooting the Progress Bill, Far Eastern Economic Review, September 24, 1992, p. 50.

World Bank Group at Bay, Financial Times, September 26, 1994, p. 19.

The World Bank: Knowledge and Resources for Development, Washington, D.C.: The World Bank, September 1999.

Wuliger, Robert, A World Economy: Paradigms Lost and Found, Challenge, January/February 1992, p. 4.

Frederick C. Ingram

World Bank

views updated May 23 2018

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.


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.


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.


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.


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.


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.


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.


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.


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.


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.


Arias Robles, Marta, and José María Vera Villacian. Banco Mundial y Fondo Monetario Internacional: ¿Una ayuda para los países pobres? Barcelona: Cristianisme i Justícia, 2002.

Baum, Warren C. La inversión en desarrollo: Lecciones de la experiencia del Banco Mundial. Madrid: Tecnos, 1985.

Caufield, Catherine. Masters of Illusion: The World Bank and the Poverty of Nations. New York: Henry Holt, 1996.

Gilbert, Christopher L., and David Vines, eds. The World Bank: Structure and Policies. Cambridge, U.K.: Cambridge University Press, 2000.

Kapur, Devesh, John P. Lewis, and Richard Webb. The World Bank: Its First Half Century, 2 vols. Washington, DC: Brookings Institution Press, 1997.

Mosley, Paul, Jane Harrigan, and John Toye. Aid and Power: The World Bank and Policy-Based Lending. London: Routledge, 1991.

Pincus, Jonathan R., and Jeffrey A. Winters, eds. Reinventing the World Bank. Ithaca, NY: Cornell University Press, 2002.

Sanahuja, José Antonio. Altruismo, mercado y poder: El Banco Mundial y la lucha contra la pobreza. Barcelona: Intermón Oxfam, 2001.

                                           Francis Adams

World Bank

views updated May 17 2018

World Bank

Affiliated with the United Nations, the World Bank was formally established in 1946 to finance projects to spur the economic development of member nations, most notably those in Europe and the Third World . The bank has been strongly criticized by environmental and human rights groups in recent years for funding Third World projects that destroy rain forests, damage the environment , and harm villagers and indigenous peoples .

The bank is headquartered in Washington, D.C. It is administered by a board of governors and a group of executive directors. The board of governors is composed principally of the world's finance ministers and convenes annually. There are 21 executive directors who carry out policy matters and approve all loans. The World Bank usually makes loans directly to governments or to private enterprises with their government's guarantee when private capital is not available on reasonable terms. Generally, the Bank lends only for imported materials and equipment and services obtained from abroad. The interest rate charged depends primarily on the cost of borrowing to the Bank. The subscribed capital of the bank exceeds $30 billion, and the voting power of each nation is proportional to its capital subscription.

The 1970s represented a period of extensive growth for the World Bank, both in the volume of lending and the size of its staff. The staff was pressured to disperse money quickly, and little real support for grassroots development ever materialized within the institution. Local populations were hardly ever consulted and rarely taken into account for the majority of the enterprises the bank funded during this period. As a result, billions of dollars of bank money was managed ineffectively by domestic public institutions that were often unrepresentative. The stated purpose of the loans was to promote modernization and open economics, but the lending network further supported the elite in the Third World and prevented the poor from playing a meaningful role in the policies that were so markedly reshaping their environments.

The international debt crisis during this decade also changed the bank, beginning its evolution into a debt-management institution when it lifted the restrictions on the non-project lending that had been established by its founders. In an effort to expedite its loan development, the bank underwent a major reorganization in 1986. It consolidated its activities under four senior vice presidents, but many consider the net results of these changes to be far from successful.

The most notable critics of the World Bank have been in the global environmental movement, but defects within the bank's operations complex have largely restricted their campaigns from effecting major changes. The bank has repeatedly withheld the majority of the information it generates in the preparation and implementation of projects, and many environmentalists continue to charge that it has become an institution fundamentally lacking the accountability and responsibility necessary for sustainable development .

The way the World Bank handled the controversial Narmada River Sandar Sarovar Dam project in India has been called a case in point. According to the Environmental Defense Fund, the history of bank involvement with the project reveals an institution whose primary agenda is to transfer money quickly, no matter what the cost in "systematic violation of its own environmental, economic and social policies and deception of its senior management and Board of Executive Directors." United States Executive Director E. Patrick Coady accused bank management and staff of a cover-up in relation to the Sandar Sarovar Dam, and he directly challenged the bank's credibility, noting that "no matter how egregious the situation, no matter how flawed the project, no matter how many policies have been violated, and no matter how dear the remedies prescribed, the bank will go forward on its own terms." Despite support from Germany, Japan, Canada, Australia , and the Scandinavian countries, Coady's accusations were ignored. Bank management continued to finance the dam until early 1993, when criticism of the project became so intense that India decided to finance the project itself. There was no plan to resettle the 250,000 people who would be displaced.

Many argue that the failures of policies at the World Bank are illustrated by other case studies in Brazil, Costa Rica, and Ghana. In Brazil, International Monetary Fund (IMF) stabilization programs have hit the poor particularly hard and depleted the country's natural resources . Although these structural programs were designed to manage Brazil's tremendous foreign debt, critics argue they have been socially, economically, and environmentally catastrophic. The "economic miracle" of the 1970s never materialized for Brazil's masses, despite the fact that the economy grew more than any other country in the world between 1955 and 1980. Due largely to ill-conceived IMF and World Bank advice, as well as ineffective leadership by the Brazilian government, development decisions in Brazil have leaned toward extravagant and poorly implemented projects. Many major projects have failed miserably, only adding to lost investments, and the environmental devastation caused by such projects has been enormous, with much of it irreversible, involving massive destruction of the tropical rain forest .

The Tucurui Dam project, for example, was part of the Brazilian government's plan to build some 200 new hydroelectric power dams , most of them in the Amazonian region. This project has destroyed thousands of acres of tropical rain forest and degraded water quality in the reservoir and downstream, further lowering the income and affecting the health of communities below the dam. For environmentalists, Tucurui is representative of the problems inherent in building large dams in tropical regions: "Opening of forest areas leads to migration of landless people, deforestation of reservoir margins, erosion and siltation causing destruction of power-generating equipment and reduction of its useful lifespan; spread of waterborne disease to human and wildlife populations; and the permanent destruction of fish and wildlife habitats, eliminating previously existing local economic activity and unknown numbers of species of plants and animals."

Ghana is usually touted by the World Bank and IMF as a particularly successful example of structural adjustment programs in Africa, but many believe that a closer examination reveals something different. The goal of the current adjustment program was to reduce the fiscal deficit, inflation, and external deficits by reducing domestic demand. A large portion of this plan was "to reverse the decline in agricultural production, restore overseas confidence in the Ghanian economy, increase foreign-exchange earnings, restore acceptable living standards, control inflation, reform prices, and reestablish production incentives for cocoa." Although cocoa production had increased 20% by 1988 as a result of incentives in agricultural sector reform, with the income for cocoa production increasing by as much as 700% in some cases, cocoa farmers make up only 18% of Ghana's farming population. Furthermore, in recent decades a growing inequity within the cocoa-producing population has been documented. Half of the land cultivated for cocoa today is owned by the top 7% of Ghana's cocoa producers, while 70% own farms of less than 6 acres (2.4 ha).

The timber industry in Ghana was also identified by the IMF and World Bank as an additional source of foreign exchange, and this led to the steady destruction of Ghana's forests. If timber production is maintained at its current rate and without appropriate environmental controls, many environmentalists and others believe that the Ghanian countryside will be stripped bare by the year 2000. The fishing industry is also threatened. Rising costs have caused the price of fish to increase while real wages have fallen. Ghanians receive 60% of their protein from the products of ocean fisheries, and decreased fish consumption in considered one of the leading factors in the rise of malnutrition in the country.

While mounting public pressure might cause the bank to reconsider some of its programs, reforms are possible only if supported by those nations controlling more than half of the Bank's voting shares. And no matter what direction is taken, many experts believe that internal contradictions will continue to trouble the bank for years, further lowering the morale of the staff. As long as the bank continues to place priority on its debt-management functions, it will likely fail to change its policy of making large-scale loans for questionable and destructive projects. Overall quality may be further diminished as developing nations continue to give up natural resources for the rapid earning of foreign exchange. Debt management could then force the bank to support large-scale, poorly-organized, and poorly-supervised projects, while the staff would be pressed harder to address wider development problems that could continue to be exacerbated by other aspects of bank lending.

The World Bank's dismal record of ignoring the interests of the poor and the environment clearly raises fundamental questions about the future of the institution. Environmentalists, human rights groups, and other critics of the Bank have offered the following suggestions for improving its operations. While there are obvious reasons for keeping some information confidential, they argue, the bank has abused this right. Greater freedom of information is necessary because participation with population groups in the development process is impossible without public access. Critics also argue for the establishment within the Bank of an independent appeals commission, maintaining that there is a clear need for a body that would hear and act on complaints of environmental and social abuses. It has been suggested that this commission could be made up of environmentalists, academics, church representatives, human rights groups, and others who would encourage the bank to emphasize sustainable development and eliminate environmentally destructive projects. And finally, it has been widely suggested that project quality should be the first priority of the World Bank, with the United Nations taking the lead in demanding this. In short, many believe the bank should no longer be allowed to function as a money-moving machine to address macro-economic imbalances.

See also Economic growth and the environment; Environmental economics; Environmental policy; Environmental stress; Green politics; Greens; United Nations Earth Summit; United Nations Environment Programme

[Roderick T. White Jr. ]



Le Prestre, P. G. The World Bank and the Environmental Challenge. London: Associated University Presses, 1989.


Payer, C. The World Bank: A Critical Analysis. New York: Monthly Review Press, 1982.

World Bank

views updated May 14 2018

World Bank

In the years before World War II the major colonial powers undertook development of their possessions, mainly on a piecemeal basis. In general, this took the form of specific projects aimed at expanding their output of domestic products, such as agriculture and mining, or improving transport facilities to bring these products to ports to be shipped mainly to the developed world. For example, the railroads in Africa ran from the interior to the coastal ports, but intra-African roads were virtually nonexistent.


World War II revolutionized attitudes on both sides. Objectives were broadened to include overall development in European colonies to benefit more of the local inhabitants. But meanwhile, the local people wanted to end the dominance of the colonial governments. Although political control shifted to many of the local populations, change came much more slowly in the economic and financial spheres because the emergence of globalization made it difficult to face down the large multinational banks and corporations, which were no longer offshoots of the ruling country. In brief, local populations felt that they had only changed masters.

Economic development by locals was also hindered by the lack of entrepreneurship, a maldistribution of income, and inadequate local markets. These obstacles were blamed by the locals on the developed world's high tariffs on native raw materials, which, they claimed, cost them more income than they received from direct-aid programs. Hence, other sources of help were needed.


A major part of the hoped-for assistance came from the World Bank, or, more formally, the International Bank for Reconstruction and Development, which, along with the International Monetary Fund, was set up by the Bretton Woods meeting in 1944. Emphasis was to be on low-cost loans, whereas gifts or grants were still on a country-by-country basis. This changed later with the setting up of two more international multicountry agencies, the International Development Agency and the International Finance Corporation, although the World Bank remained the main source of international funds.

Despite its name, the World Bank is not the ordinary commercial organization, accepting deposits from the public and financing private firms. Rather, it is a multilateral institution owned and governed by national governments. It is unique in that economic assistance in the form of loans below market rates of interest are extended on a multicountry basis, rather than aid being an obligation of a ruling country to a dependency. The bank is not an activist free-market advocate, although top management, originally drawn mainly from the United States and Great Britain, does favor the efficiency of self-adjusting markets. The bank's emphasis gradually shifted from the immediate postwar recovery of war-torn Europe to the need of the poorer members—denoted as "less-developed"—once the main reconstruction was accomplished.

This changeover was hindered by the poorer areas' inferior administrative abilities and financial probity. As a result, the bank had to give both technical assistance and help in establishing the necessary administrative authorities. In 1956 the International Development Agency was created to augment the World Bank's lending powers. This was followed in 1960 by the addition of the International Finance Corporation to help would-be borrowers whose creditworthiness was not up to World Bank standards. This called for a careful assessment, because if land reform were initiated with a shocking maldistribution of income and wealth, it would threaten the country's ruling government, which would likely sabotage the reforms.

In the 1980s the bank tried to speed up the agriculture programs, concentrating on loans for irrigation and drainage, and hoping that the peasant farmers would respond to economic incentives. Later, the efforts went more to growth and equity, such as improving rice yields for the poor. This raised the problem of whether to focus on specific projects, such as rice production, or on developing an entire country.


Considering the magnitude of the World Bank's resources, it would appear that as a major creditor the bank could dictate terms to any borrower. Yet, this has not always been the case. For example, having already committed large sums to Brazil over several years, exiting was an impracticality. As the bank's then-president Robert McNamara (b. 1916) put it pithily, Brazil is so big that it could tell the bank to "go to hell," especially because at that time Brazil's annual payments to the bank exceeded the remaining World Bank's income, which was worrisome if Brazil were to default.

After 1986 extensive aid requirements in various parts of the world drained the bank's resources. In famine-struck Africa, the bank had to make emergency loans to avert social instability. Meanwhile, a new group of competitors for bank finance came on the scene following the fall of the Berlin Wall and the splintering of the Soviet Union. Eastern Europe started to press for assistance, asking for 50 percent or more than had been allocated to sub-Saharan Africa. And then there were the debt crises, which were so widespread that they shook even the U.S. economy. Possible widespread defaults by debtor nations threaten even the solvency of the hitherto invincible U.S. megabanks.

While the winds of political change were gathering force after 1960, the economic aspects reached hurricane power after 1990. Before then, and especially before 1977 to 1980, the nations of the developing world were either poverty-stricken or else somewhat better-off, but still poor. But then a new dynamic entered the picture. In effect, the West discovered the developing areas, and since then we can categorize the countries into three groups: the very poor who continued to be very poor, that is, the so-called "basket cases"; the middle group, which had made some economic progress, but still had far to go to reach reasonable well-being; and the "tigers"—mainly East Asian countries whose economies had been among the poorest but now rivaled and in some sectors even surpassed Western nations. The boom in the tiger nations was fed by foreign loans and investments, thanks in part to the low-interest environments in the lending countries.


By the early twenty-first century the tigers—Taiwan, South Korea, Thailand, Hong Kong, and Malaysia—had apparently escaped the poverty trap, and India and mainland China, each with over a billion people, managed to improve economic conditions for a significant minority of their population. Their unspeakable poverty was now beginning to disappear.

By 2003 global liquidity increased enough to make for easy monetary conditions. International investors were now willing to take the risks associated with the less-developed countries, and memories of the recent adverse monetary experiences were fading. Net capital flows to the Asian tigers rose to about U.S.$170 billion, the highest level in seven years. Stocks, bonds, and bank loans all recovered. Only foreign direct investment—setting up production facilities owned and/or managed by foreign investors—declined. It was mainly the Asian economies that attracted these funds. The slower progress of privatization, however, was a stumbling block, as was the slowing of the economies of Brazil and Mexico, and the economic crisis in Argentina.

Aided by low interest rates in the developed countries, foreign investors in search of better yields moved in, especially to those countries with faster growth. Dollar reserves rose, and the developing world became a major player in Western financial markets. However, this inflow was towards more volatile investments in the developing countries, with the ever-present threat of a reversal if the economic climate deteriorated. Credit to individuals (mortgages and credit cards) was especially risky. A new world of hope had apparently opened up, and the rush to participate was on.

No longer was economic assistance needed for the tiger countries. Their living standards approached those of some of European countries, as did the more prosperous sectors of India and China. Some tigers, such as South Korea, Taiwan, and Singapore, had accumulated sizeable foreign-exchange reserves, and thus were able to withstand economic adversity. All of their economies were characterized by booms—until a large-scale economic crisis erupted.


In mid-1997 trouble started with the Thai currency, which then triggered adverse reactions for other hitherto prospering countries such as Brazil and Argentina. Once the threat of a downturn appeared, foreign lenders started pulling out their funds, aggravating the difficulties. Some currencies lost half their values. Many of the once prosperous, who had relied on borrowed funds, suddenly found that they could not pay, and bankruptcies spread. It took some five years, or even longer in some cases, for a reasonable growth rate to reappear. Meanwhile, widespread poverty again became the norm, dashing the hopes of many who had just tasted affluence.

Medium-poor countries, such as those in Latin America, felt the effects of the Asian difficulties too, as foreigners withdrew funds. There, too, borrowed money became flight capital, thereby threatening wholesale insolvency. Some help came from the Federal Reserve Bank of New York, although critics said that the help extended was mainly to avert default of U.S.-sponsored loans rather than to assist the besieged economies to turn back the storm. This feeling caused controversy on both sides, although the idea of default was not abhorrent to the Latins—Brazil had defaulted seven times, Argentina five, and Venezuela nine. The fear that default would close a defaulting nation's access to world credit was belied by history—even the wholesale repudiation of debt in the 1930s did not stop lending in the 1960s and 1970s. The more conservative Anglo-Americans, who were still wedded to free-market beliefs, feared that safety nets to alleviate the adverse turn of the financial sector would make the international agencies into soup kitchens. Fortunately for the debtor countries, the poverty advocates pressured for the rapid disbursement of funds, thereby mitigating the balance-of-payments and debt-repayment problems.

But the accompanying agony built up a backlash that exploded in violence. The barricades went up as activists stormed the World Bank's international meetings in an attempt to disrupt them and get a hearing of their complaints. This reaction was reinforced by the spreading threat of increasingly complex globalism, which would replace centuries of stable, traditional work habits by the "cash nexus" demanded by modernism, accompanied by the migration of businesses to other, foreign locations. Yet, opposing these shifts threatens to end the climb from poverty. As bank supporters point out, a Luddite mentality does not make for economic growth; the required transition will be painful.

SEE ALSO Bretton Woods; International Monetary Fund (IMF); Keynes, John Maynard.


Kapur, Devesh; Lewis, John P.; and Webb, Richard. The World Bank: Its First Half Century, Vol. 1: History, and Vol. 2: Perspectives. Washington, DC: Brookings Institution Press, 1997.

Marcus, Edward. "The History of the World Bank." Royal Economic Society Economic Journal 112 (February 2002): 119–135.

Edward Marcus

World Bank

views updated May 23 2018


The World Bank (Bank) or International Bank for Reconstruction and Development was created at a meeting of the forty-four World War II allied nations in Bretton Woods, New Hampshire, in 1944. Because of its promotion of economic development, the Bank is also an international institution involved to some extent with issues relevant to science, technology, and ethics.

Historical Emergence

At its inception, the Bank's mission was to make long term capital loans to countries harmed by World War II and, more generally, to undeveloped countries worldwide. Sister organizations founded at the same time, with overlapping missions, include the International Monetary Fund (IMF), the International Development Association, the International Finance Corporation, and the Multilateral Investment Guarantee Agency. Through an agreement signed in November 1948, the Bank acts as a specialized UN agency.

Surprisingly the Bank was largely irrelevant to the process of rebuilding Europe after World War II; the majority of the huge financial commitment came through the United States' Marshall Plan. In the first twenty-five years after its creation, the World Bank made only a handful of loans to European states (albeit large ones), including loans for the reconstruction of the steel industry in France, Belgium, and Luxembourg (McLellan 2003). With money in hand collected from its subscribing members, the Bank nevertheless felt an intense pressure to lend, and fell back to a secondary mission, that of lending to economically underdeveloped countries.

The Bank's charter contained language militating in favor of project-based lending, and in the early years most of its loans were for the finance of specific projects such as the development of mines or dams (Skogly 2001). The Bank, which experienced a failure rate of as much as 70 percent of its loans in the poorest countries (McLellan 2003), soon noticed that local conditions did not support the success of these projects. Among the factors cited by the Bank for project failure in poor countries are ineffective government, corruption, and lack of transparency (World Bank 1994).

To respond to these problems, the Bank began a program of so-called structural adjustment loans or SALs, which represented a movement away from its original project-based lending. SALs involve money advanced for a variety of projects and efforts, and are explicitly conditioned on the implementation of structural and economic changes by the borrowing country, including decentralization, privatization, cost-cutting, and discontinuance of tariffs and supports for its own currency.

In 2002 the Bank made $11.5 billion in loans in support of ninety-eight projects in forty countries. It currently has a total of about 1,800 projects in almost every developing country (McLellan 2003).


The main charge leveled against the Bank is that its ideological approach to lending actually creates the poverty it is intended to combat. Most critics focus on the SALs with their attendant mandatory conditions. Vikas Nath says that the Bank reduced many Third World nations to even greater poverty and dependence on Western aid. Countries often have to borrow from other sources to repay the Bank. Borrowing countries "gradually lost their ability to shape their own future. ..." (McLellan 2003, p. 62). In the poorest countries, government employment arguably provides a social safety net when jobs in private industry are unavailable. Critics argue that, by forcing cuts in government employment, the Bank throws people into poverty, since the predicted growth in private employment does not materialize soon enough, or with salaries high enough, to pick up the slack.

For many years, the Bank rarely assessed the environmental or social impact of projects it funded. The Sardor Sarovar dam project in India, projected to displace 1 million people, was canceled because of local protests. The Bank admits that under its current portfolio of projects, some 26 million people have been evicted, lost land, or lost livelihoods. As a result, in the early-twenty-first century the Bank conducts environmental reviews of all projects, and lending for environmentally beneficial projects makes up 10 percent of its portfolio. (McLellan 2003).

Critics also question whether a for-profit institution can carry out a not-for-profit mission in the Third World. "The World Bank focuses on economic growth until it is distracted by other issues like hunger, women, health, the environment, etc. The World Bank tries to adapt itself to these considerations without giving up its basic goal" (Danaher 1994, p. ix).

Such critics contend that the SALs in particular lead to the repression of democratic rights in poor countries, without reducing poverty. "Structural adjustment is a policy to continue colonial trade and economic patterns developed during the colonial period. ... [Third World countries] are more dependent on the ex-colonial countries than we ever were" (Danaher 2003, p. 4). Thirty out of forty-seven African governments have been in SALs for many years—yet by 1992, rather than being reduced, their external debt had more than doubled (to $290 billion) (Danaher 2003).

Shakrukh Rafi Kahn studied the impact of Bank lending in Pakistan over a twenty-year period. Though some initiatives, such as privatization of state-owned banks, were somewhat successful, he noted the greatly disproportionate impact of the Bank's SAL policies on the nation's poor: "They have been hurt many times over. Not only have they borne a disproportionate burden of the cuts in employment, cuts in subsidies and the rise in prices, but they also have started bearing more of the tax burden" (Kahn 1999, p. 120).

The Bank, in more guarded language, seems to be aware of the problems with its programs. In a publication on governance in developing countries, the Bank notes that the form of government (democratic or autocratic) is not one of its concerns. In reviewing its SALs around the world, the Bank concedes that things have not gone well in Africa: "Bank assistance to Africa is dominated by the collapse of public sector capacity in many countries, brought about by a combination of state over-extension, delayed adjustment to changed external economic circumstances, natural events, and poor governance" (World Bank 1994, p. 9). It recognizes that Western solutions to problems cannot always be transferred wholesale to countries with very different traditions. The Bank concludes "Performance in sub-Saharan Africa has been disappointing" (World Bank 1994, p. 11).

In a more overtly self-critical document, water expert George Keith Pitman (2002) argues that the Bank is poorly organized to implement its own water resources management strategy. Knowledge and leadership on water issues is seriously fragmented within the Bank's management structure, while budget cuts have eroded the knowledge function. Pitman also quotes certain nongovernmental organizations (NGOs) that believe "the pressure to lend ... has not been removed and continues to work against aspects of the water policy that recommend greater attention to smaller and cheaper alternatives" (Pitman 2002, p. 39).

The Poverty Action Lab, a Massachusetts Institute of Technology project, has begun randomized evaluations of the impact of Bank projects. Its researchers agree that success cannot be measured only by concrete achievements; assessments must include the impact of Bank projects on the lives of the poor (Dugger 2004). For example, hiring additional teachers for rural Indian schools did not improve test scores, but treating debilitating intestinal worms in Kenyan students raised attendance at a cost of only $3.50 per treated person per year.

Economists at the Poverty Action Lab say that the Bank's culture led to a certain complacency in the past, preventing the Bank from rigorously evaluating its own projects. The Bank is beginning to pay attention, organizing its own randomized studies.

Columbia professor Joseph Stiglitz believes that the Bank has been more successful than the international monetary fund in undertaking sweeping reforms of its own structure and approach: "the bank has always been less hierarchical than the IMF and more accepting of alternative views. ... [by 1997] the bank had begun to seriously address the fundamental criticisms levied at it" (Stiglitz, p. 122).


The Bank is a well-funded, powerful Western institution with the mission of aiding developing countries. Many of its good intentions may be wasted due to its attempt to apply free market solutions in countries with very different traditions, or that are simply not ready for these approaches.


SEE ALSO Development Ethics;Modernization;Money.


Danaher, Kevin, ed. (1994). Fifty Years is Enough: The Case Against the World Bank and the I.M.F. Boston: South End Press. A collection of essays from a left-wing and critical perspective.

Dugger, Celia. (2004). "Letter From Washington: World Bank Challenged: Are the Poor Really Helped?" The New York Times, July 28, p. A4.

Kahn, Shakrukh Rafi. (1999). Do World Bank and I.M.F. Policies Work? New York: St. Martin's Press. A study of the impact of twenty years of structural adjustment loans in Pakistan

McLellan, Elisabeth P., ed. (2003). The World Bank: Overview and Current Issues. New York: Nova Science Publishers. An overview of the Bank's history and impact on the third world

Pitman, George Keith. (2002). Bridging Troubled Waters: Assessing The World Bank Water Resources Strategy. Washington, DC: World Bank. A World Bank analyst argues that the Bank's strategy on water resources is flawed

Skogly, Sigrun. (2001). Human Rights Obligations of the World Bank and the International Monetary Fund. London: Cavendish Publishing. An analysis of the impact of the Bank under the International Law of Human Rights.

Stiglitz, Joseph. (2003). "Democratizing the International Monetary Fund and the World Bank: Governance and Accountability," in Governance: An International Journal of Policy, Administration and Institutions, 16 (1) 111–139. A defense of the World Bank as an institution responsive to its critics.

World Bank. (1994). Governance: The World Bank's Experience. Washington, DC: Author. The Bank's critique of the impact of its structural adjustment loans, placing some of the blame on local corruption and conditions.

World Bank

views updated Jun 08 2018


The international organization lends to developing countries of the Middle East.

The World Bank is based in Washington, D.C. It includes the International Bank for Reconstruction and Development (IBRD) and the International Development Agency (IDA). IBRD has two affiliates, the International Finance Corporation (IFC) and the Multilateral Guarantee Agency (MIGA).

IBRD was established in 1945 and is owned by 152 countries. The bank's resources come from its capital, retained earnings, and very large loans from the world financial markets (US$8.9 billion in 1994). Its high creditworthiness allows it to borrow

statement of subscriptions to the capital stock and voting power of middle eastern countries
countrycapital subscribed*capital paid*% of vote
*in millions of dollars.
source: World Bank Annual Report, 2001. Washington, D.C.: World Bank, 2001.
table by ggs information services, the gale group.
saudi arabia5,404.80335.002.79
Loans to Middle East Countries by the World Bank in 2001
countryibrd loansibrd loan amounts*ida loan amounts*
*in millions of dollars
international bank for reconstruction and development
international development association
source: World Bank Annual Report, 2001. Washington, D.C.: World Bank, 2001.
table by ggs information services, the gale group.
yemen  142.30

at the most competitive rates. IBRD lends to the more advanced developing countries on creditworthy and productive projects. Pricing is based on the cost of funds to the bank. Loans are made to governments or are guaranteed by governments. Total IBRD loans made in 1994 totaled US$20,836 million. IFC, established in 1956, and MIGA, established in 1984, deal with the private sectors of the developing countries. MIGA is mandated to encourage private equity investments by providing noncommercial risk guarantees. IDA lends interest free to the very poor countries with an annual per capital GNP of US$650 or less per year. The loans have very long maturities and up to a ten-year grace period.

The World Bank's executive board is responsible for the general operations of the bank. The board approves projects, funding programs, and general management of both the IBRD and the IDA. The board is composed of twenty-four members. Each member represents and votes for his country as per its percentage contribution to the capital of either IBRD or IDA. Certain countries also will represent blocs of smaller members and vote on their behalf. The largest vote belongs to the United States, which contributes 17.42 percent of IBRD capital and 15.67 percent of IDA capital. Saudi Arabia has the largest single Arab state representation on the World Bank board with 2.79 percent of the votes of the IBRD.

Relative voting strength on the World Bank board of Middle East countries
members on the executive board% votes in international bank for reconstruction and development% votes in international development association
source: World Bank, February 25, 2003.
table by ggs information services, the gale group.
saudi arabia2.793.57

In the Middle East, the World Bank's stated goals are "to emphasize sustained commitment to operations and analytical work, to promote employment-led growth, to foster human resources development, and to improve natural resource management." The bank provides support to countries that agree to implement stabilization and structural reform. These conditions imply substantial efforts to reduce budget deficits, cut subsidies, allow currencies to reach their market levels, and privatize the economy.


Kapur, Daves; Lewis, John P.; and Webb, Richard. The World Bank: Its First Half Century. Washington, DC: The Brookings Institute, 1997.

jean-franÇois seznec

World Bank

views updated May 14 2018

World Bank

What It Means

The World Bank Group, commonly called the World Bank, is an international organization that helps poor and developing countries build their economies. It makes loans to these countries and provides financial assistance and supervision, with the overall goal of reducing poverty through the promotion of free-market capitalism (an economic system in which private individuals own most businesses and the economy operates with little government interference).

The World Bank is related to the United Nations (an organization of countries that promotes friendly international relations, peace, and security), but it is not directly accountable to it. As with the United Nations (UN), the World Bank consists of member countries, and each has some voting power in the organization. Most countries in the world belong to the World Bank, but it is dominated by the wealthiest countries.

There are two main components of the World Bank, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The first focuses on helping middle-income countries, primarily through loans, and the second focuses on helping the world’s poorest countries through no-interest loans (interest is a fee charged for borrowing money) and other forms of assistance.

While the World Bank is the largest source of financial assistance for the developing world, it is also one of the main forces (along with the International Monetary Fund and the World Trade Organization) responsible for shaping global economic priorities. It is sometimes criticized for serving the interests of the United States and other powerful countries rather than the interests of the countries it is supposed to be helping.

When Did It Begin

The World Bank was established in 1944, during the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire. This conference, commonly called the Bretton Woods Conference, was a meeting of 44 representatives of different states or governments that took place as World War II (1939–45) was winding down. The purpose of the meeting was to discuss solutions to the financial problems that the world would face once the war had concluded. In addition to deciding on the establishment of what would become the World Bank, the Bretton Woods talks led to the formation of the International Monetary Fund, which oversees exchange rates (how much one country’s currency is worth compared to that of other countries) and debts between different countries, among other financial matters. Together the World Bank and the International Monetary Fund are often called the Bretton Woods Institutions, or BWIs.

In its early years the World Bank was primarily focused on helping Western European countries rebuild after the devastation of the war. In the 1950s it began to focus more on the needs of developing countries. Initially it helped with constructing important public systems such as roads, dams, airports, and water and sewage systems. In subsequent decades the World Bank became more concerned with sustainable development (that is, promoting economic development that creates businesses, institutions, and infrastructure that allow for both long-term economic growth and a healthy natural environment) and with reducing the enormous income gap between rich and poor countries.

More Detailed Information

The World Bank generates money for its projects in three main ways: through contributions of capital (money and other resources) from member countries, by collecting interest on the loans it makes, and by selling government-issued securities on various world financial markets. (When people buy such securities, they are loaning their money to the government, which guarantees to pay back the original amount plus interest.) It uses this money to make loans, give grants, and provide a various types of consultation and assistance to developing countries. In its capacity as a lender to poor countries, it often has the power to make its loans conditional, requiring that the country make specific governmental changes that promote free-market capitalism.

The World Bank’s two main components are the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD offers loans to countries that qualify for credit (which means they have the means to pay back loans). These are nations of middle-income levels rather than the poorest of the world’s countries. The IDA is responsible for helping the poorest countries, which would not otherwise qualify for loans. Countries served by the IDA often have access to no-interest loans and assistance in the areas of education, health care, and development of infrastructure (large-scale public projects such as roads and dams) and communications capabilities.

The World Bank Group includes three other agencies: one that helps businesses in developing countries, another that provides guarantees for the investors who contribute money to the World Bank, and a third that helps settle disagreements between investors and the countries to which they lend money.

There are more than 180 member countries of the World Bank, and each country is represented equally in the organization’s governing body, the board of governors. The governing body does not dictate the majority of the World Bank’s policies, however. This is done by 24 executive directors, who are appointed according to global influence. The United States, the United Kingdom, Germany, France, and Japan are each represented by one executive director, while other countries are grouped together into regions, each of which is represented by an executive director. The president of the World Bank, furthermore, has always been a U.S. citizen (often a former official of the U.S. government), and the organization’s headquarters are in Washington, D.C.

Additionally, while some votes are held in which all member countries have an equal say, many of the important votes about World Bank policy are conducted in proportion to each country’s financial contribution to the organization. In this arena the United States outstrips all other member countries by a wide margin. At the beginning of the twenty-first century, the United States controlled more than double the votes of the second most influential country, Japan, and it held enough voting power to block most major decisions on its own. Because poor countries, which receive most of the aid, do not contribute much financially to the World Bank’s operations, they have little influence over its policies.

World Bank staff members in many developing countries work closely with government advisers to shape policy (plans and procedures for achieving certain goals) and make other financial decisions. The World Bank also has ties with the various financial markets in the world, and it serves as a liaison between organizations in developed and developing countries.

Recent Trends

Some analysts claim that the World Bank is partially responsible for economic stagnation in much of the developing world. In the 1980s difficult world-economic conditions made many poor countries unable to repay the loans made to them by the World Bank. In an attempt to create economic growth and make these countries solvent (which means having enough money to pay back debts), the World Bank forced the countries’ governments to enact spending limits and cuts, including cuts in the areas of education and health care. The World Bank also typically forced these countries to adopt free-market mechanisms such as the deregulation of the financial industry (that is, cutting down on government regulation of business), the transfer of government-controlled businesses into private hands, and the discontinuation of price controls (limits on the prices of certain goods). Often conditions worsened as a result of these measures.

Similarly, after the collapse of the Soviet Union in 1991, the World Bank played a major role in helping Central and Eastern Europe with the transition from communism (in which the government controls the economy) to capitalism (in which private individuals own most businesses). In many cases the World Bank forced state-run industries to close, but when this happened, unemployment rose dramatically. The World Bank’s free-market reforms increased inflation and reduced the quality of life in several of these countries.

World Bank

views updated May 18 2018


Ensuring adequate levels of basic health and nutrition lies at the heart of poverty reduction and economic development, which are the cornerstones of the World Bank's mission. While much of the world has experienced notable health gains, the health, nutrition, and population challenges for most developing countries remain great in the twenty-first century:

  • Six communicable diseasesHIV/AIDS (human immunodeficiency virus/acquired immunodeficiency syndrome), malaria, tuberculosis, measles, diarrheal disease, and acute respiratory infectionaccount for more than half of the global communicable disease burden.
  • HIV/AIDS threatens the future progress of many countries, particularly in Africa where health care systems are stretched beyond their limits.
  • Two million children die each year from vaccine-preventable diseases, and over half of the child mortality in low-income countries is linked to malnutrition.
  • Cancer, heart disease, and injuries represent a growing proportion of the disease burden in many countries, and tobacco-related illness and death threaten more people, particularly women and young people.
  • More than 500,000 maternal deaths occur each year, and more than one-third of all pregnancies are believed to be unwanted or mistimed.
  • Environmental degradation poses a serious threat to health in much of the world, and the ability of populations to fight poverty and improve well-being.

Addressing these challenges requires approaches which transcend regional or organizational boundaries and embrace the active participation of communities. Together with sustained improvements in education (particularly for girls), the environment, and the availability of roads and safe water supplies, better health care can be achieved.

The World Bank's objectives for its work in health, nutrition, and population (HNP) are to assist countries in improving the HNP outcomes of poor people and protecting the population from the impoverishing effects of illness, malnutrition, and high fertility; enhancing the performance of health care systems; and securing sustainable health care financing.

The bank works together with countries in achieving these objectives in several complementary ways. First, the World Bank is the single largest source of HNP financing for developing countries. From 1970 through 2000, the bank has offered $16 billion in loans to more than one hundred countries. Second, the World Bank provides technical and policy advice on a wide range of topics in HNP, from health-system reform to maternal and child health and nutrition. The bank also supports governments in the formulation of poverty-reduction strategies that stress the role of human capital in general, and health status in particular, in fighting poverty. Third, the bank mobilizes and maintains partnerships with countries, nongovernmental organizations (NGOs), private enterprises, bilateral donors, foundations, and other agencies. Fourth, knowledge management and sharing, including dissemination of the bank's analytical work, are also critical.

The bank's work in health emphasizes the interconnectedness between ill health and poverty. Recent work has supported improvements in the equity and efficiency of health systems through changing how health care providers are paid, how resources are allocated, and engaging private providers in publicly funded service provisions. Support is also directed towards upgrading infrastructure and equipment, training health personnel, and strengthening policymaking and capacity building.

In public health, the bank focuses on five priority areas: HIV/AIDS, malaria, tuberculosis, maternal/child health and nutrition, and tobacco control. Recent work in the economics of tobacco control is helping to demonstrate to governments that taxation, together with other measures such as advertising bans, can significantly reduce smoking and save lives without permanent negative effects on the economy. Support for immunization programs continues to expand through the bank's partnership with the Global Alliance for Vaccines and Immunization.

Recognizing that malnutrition takes an enormous toll on health and well-being, the bank committed about $2 billion to support nutrition activities from 1976 through 2000. The multisectoral approach adopted in these activities encompasses community-and school-based programs, with an emphasis on communication for behavior change, food fortification programs, and food policy reforms.

From 1970 through 2000, the bank supported more than 239 population and reproductive health projects in 87 countries. These activities help to address the impoverishing effects of unplanned pregnancy and maternal mortality, and to ensure that the vital needs of women, children, and adolescents are met. The bank's work links population policy with poverty reduction and human development through an approach which integrates family planning, maternal health, and the prevention and treatment of sexually transmitted infections, including HIV/AIDS.

Sabrina Huffman

(see also: Family Planning Behavior; HIV/AIDS; International Development of Public Health; International Nongovernmental Organizations; Maternal and Child Health; Poverty; Reproduction )


World Bank (2001). World Development Report 20002001: Attacking Poverty. New York: Oxford University Press.

(2001). The World Bank Annual Report 2000. Washington, DC: Author

World Bank Group (1997). Health, Nutrition, and Population Sector Strategy Paper. Washington, DC: Author.

World Bank

views updated May 08 2018


WORLD BANK, formally known as the International Bank for Reconstruction and Development, was primarily the brainchild of Henry Dexter White, the assistant secretary of the Treasury during Franklin Roosevelt's third administration. Wary of the lessons of the 1930s, White was convinced that private investors would be unable to provide adequately for postwar European reconstruction. Accordingly, White envisioned the bank as an institution to guarantee foreign securities and, if necessary, loan money directly to governments.

Plans for creating the bank existed as early as 1942. Alongside the International Monetary Fund (IMF), the bank came into being during the Bretton Woods Conference in July 1944. Forty-four nations (twenty-seven of which were considered as "developing" countries) attended the conference, but the United States, Britain, France, and Canada primarily directed it. While the IMF was the outcome of intense negotiations between the United States and Britain, the bank's creation was largely controlled by America. Once established, the bank started with a $7.6 billion treasury, nearly all of which was fronted by the United States, to help rebuild war-torn Europe as well as aid in the development of Africa, Latin America, and Asia.

When it became clear that the needs of postwar reconstruction would far exceed the resources of the bank, and as the Marshall Plan took over the job, the focus of the bank shifted to Third World development. The shift in lending to developing countries was far from smooth, however, as many countries could not afford the bank's interest rates, its financial resources were too small, and its charter forbade making direct loans to private enterprises. To offset these problems the International Finance Corporation (1956) and the International Development Association (1960) were created as affiliates of the bank, and it began to take its present-day shape.

The bank obtains its resources in three ways: money invested by member countries, issuing bonds, and net earnings on the bank's assets. In 2002 there were 138 members of the World Bank Group, each of which must also be a member of the IMF. Each member acts as a shareholder but, due to their size and resources, the United States, Japan, Germany, France, and the United Kingdom dominate policymaking. Headquartered in Washington, D.C., the bank concentrates on issuing loans for economic development in Africa, Asia, the Middle East, and Latin America. It invests money in projects designed to create stable, sustainable, equitable growth in developing countries. Project lending makes money available for tasks such as natural resource development. Loans can also be made to an entire sector of a country's economy—agriculture, for example—or can be designed to aid in reorganizing a country's institutions to orient their policies toward free trade. Finally, loans are made to temporarily relieve debt crisis.

Until the presidency of Robert McNamara (1968– 1981) the bank showed little concern with poverty itself, but McNamara redefined the idea of "development" to include the relief of poverty. While critics charge that the bank has actually done little to alleviate long-term poverty, and while the bank itself recognizes that the tasks it sets for itself are daunting, its motto is "Our Dream is a World Free of Poverty."


Brown, Bartram, S. The United States and the Politicization of the World Bank: Issues of International Law and Policy. London: Kegan Paul, 1991; New York: Routledge, 1992.

George, Susan, and Fabrizio Sabelli. Faith and Credit: The World Bank's Secular Empire. Boulder, Colo.: Westview Press, 1994.

Gwin, Catherine. U.S. Relations with the World Bank, 1945–1992. Washington, D.C.: Brookings Institution, 1994.

Kapur, Devesh, John Lewis, and Richard Webb. The World Bank: Its First Half Century. Washington, D.C.: Brookings Institution, 1997.


See alsoInternational Monetary Fund .

World Bank

views updated May 14 2018


The International Bank for Reconstruction and Development, commonly referred to as the World Bank, is an international financial institution whose purposes include assisting the development of its member nations' territories, promoting and supplementing private foreign investment, and promoting long-range balanced growth in international trade.

The World Bank was established in July 1944 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. It opened for business in June 1946 and helped in the reconstruction of nations devastated by world war ii. Since the 1960s the World Bank has shifted its focus from the advanced industrialized nations to developing third-world countries.

The World Bank consists of a number of separate institutions. The three major institutions are the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), and the International Finance Corporation (IFC). The IBRD, the bank's most important component, lends funds directly, guarantees loans made by others, or participates in these loans. The IDA, which was established in 1960, lends to low-income countries on more favorable terms, charging a small service fee but no interest. It gets its funds from more affluent member countries. The IFC, established in 1956, provides loans to private business in developing countries.

Twenty-nine nations joined the World Bank in 1945. By 1996 the bank had 180 members. The bank is governed by an executive board and a managing director. Voting in the bank is weighted according to the initial contributions to the bank's capital, which historically has given the U.S. government a dominant voice in the bank's affairs.

In 1996 almost one-third of the bank's loans went to the world's poorest countries. However, the bank has moved away from financing large-scale infrastructure projects, such as roads, railways, and power facilities. Since the 1970s, the bank has provided an increasing number of loans to developing countries for agricultural, educational, and population programs. The goals of these loan programs have been to raise the standard of living and to increase self-sufficiency.

The World Bank also offers advisory services to countries seeking to reform their banking and finance systems. It has also launched InfoDev, an initiative to secure resources from corporations, foundations, and governments to promote reform and investment in the developing world through improved access to information technology.

In the late 1990s several coalitions of organizations and individuals formed Jubilee 2000 to campaign for debt-forgiveness for poor countries that found themselves unable to pay back the bank's loans. The World Bank and the international monetary fund responded by establishing the Heavily Indebted Poor Countries Initiative (HIPC) that sought to provide relief for the world's most heavily indebted countries. In April 2000 World Bank President James D. Wolfensohn stated that he welcomed Jubilee 2000 and continuing public involvement for their contributions toward getting creditor countries to support the HIPC.

further readings

Howarth, David, and Peter Loedel. 2003. The European Central Bank: The New European Leviathan? New York: Palgrave Macmillan.

Smith, Roy C., and Ingo Walter, eds. 2003. Global Banking. 2d ed. New York: Oxford Univ. Press.

World Bank Website. Available online at <> (accessed August 17, 2003).


International Monetary Fund.

About this article

World Bank

All Sources -
Updated Aug 18 2018 About content Print Topic