World Bank

The World Bank (often called simply “the Bank”) is one of the Bretton Woods institutions, including the International Monetary Fund (IMF), that have their roots in the post-World War II meeting of eminent economists in Bretton Woods (New Hampshire) to discuss the rebuilding of Europe. While the Bank was to provide longer-term funds for investment in productive endeavors, the IMF was to provide short-term balance-of-payments relief.

What is often referred to as the World Bank is part of the World Bank Group, which is made up of the following five development institutions: (1) International Bank for Reconstruction and Development (IBRD), (2) International Development Association (IDA), (3) International Finance Corporation (IFC), (4) Multilateral Investment Guarantee Agency (MIGA), and (5) International Centre for Settlement of Investment Disputes (ICSID). The World Bank comprises only the IBRD and the IDA. Although the IBRD and IDA share the same staff and headquarters in Washington, D.C., each has a different focus: The IBRD assists middle-income and creditworthy poor countries, while the IDA focuses on the world's [Page 3125]poorest countries (i.e., those with per capita income of less than US$1,065 in 2008). The IBRD also has a much larger country membership and a broader mission than the IDA. It provides its client countries with loans, guarantees, and analytical and advisory services. The IBRD's financial strength enables it to borrow in capital markets at low cost and to offer clients favorable borrowing terms. The IDA provides interest-free, long-term loans, called credits, and grants to governments of the world's 82 poorest countries, which have little or no capacity to borrow on market terms. The IDA's lending is financed by contributions to the IDA from donor countries, the IBRD's net income transfers, grants from the IFC, and IDA loan repayments. IDA funds are used to finance poverty reduction programs and are allocated to countries based on anticipated “development effectiveness,” and the Country Assistance Strategy is used for distributing the money within the country (Table 1).

Each of the World Bank Group institutions is owned by its member countries, which are shareholders. The Bank is supervised and directed by a 24-member Board of Governors. The voting power of the individual executive director is based on the shares of the countries they represent. The United States, Japan, Germany, France, and United Kingdom each appoint one executive director, and collectively, these five countries control 37.4% of the total votes. The president of the World Bank Group has a 5-year term and is selected by the executive directors. While this formal structure gives the impression of balance in the relative power of owner nations, in reality the United States has the greatest influence because, as the largest contributor, it selects the president (who by tradition has always been a U.S. citizen), who is then approved by the Bank's executive directors (the managing director of the IMF has also traditionally been European). The Bank's leadership has been a source of criticism by those who argue that the developing country clients have no say in selecting its leader.

Since the establishment of the Bank in 1944, its development philosophy has gone through several transformations. The first major transformation, following the implementation of the US$12 billion Marshall Plan for the postwar reconstruction of Western Europe, was a shift in focus to the development needs of developing countries. The second transformation, which occurred under Bank President Robert McNamara (1968–1981), shifted the focus of the Bank's loans from investments in infrastructure to broader support for development projects involving human development and economic transformation, paving the way for the Bank's initiation of structural adjustments programs (SAPs) during President Alden Clausen's (1981–1986) tenure. Implemented in the 1980s and 1990s, SAPs sought to promote economic development through trade liberalization and free market enterprise. The Bank's development philosophy was heavily criticized during its 50th anniversary, in 1994, under the slogan “50 years is enough.” Moreover, the Bank was criticized for promoting and financing inequitable and unsustainable development that creates (rather than reduces) poverty and destroys the environment and for being undemocratic because it denied citizens of poor countries a role in making the major development decisions affecting their societies. These [Page 3126]criticisms led to a final transformation under James Wolfensohn's presidency (1995–2005), marked by the emergence of the “Comprehensive Development Framework” approach based on four principles: (1) a holistic long-term strategy; (2) domestic ownership, both “owning” and directing the development agenda; (3) a stronger partnership among governments, donors, civil society, the private sector, and other development stakeholders; and (4) a transparent focus on development results to ensure better poverty reduction. Today, the Bank virtually sets the global development agenda, which is currently focused on reducing poverty in developing and transition countries.

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