WORLD BANK

The World Bank Group (WBG) was established in 1944 to rebuild post-World War II
Europe under the International Bank for Reconstruction and Development (IBRD). It is
one of a variety of organizations seeking to shape the world economy.

Today, the World Bank functions as an international organization that fights poverty by
offering developmental assistance to middle-income and low-income countries. By
giving loans and offering advice and training in both the private and public sectors, the
World Bank aims to eliminate poverty by helping people help themselves. Under the
World Bank Group (WBG), there are complementary institutions that aid in its goals to
provide assistance.

KEY TAKEAWAYS

 The World Bank is an international organization that offers developmental

assistance to middle-income and low-income countries.
 Founded in 1944, the World Back has 189 member nations and aims to reduce
poverty in the developing world.
 While WBG strives to create a poverty-free world, there are groups that are
passionately opposed to the international patron as critics feel that its efforts
actually make things worse.
Membership in the World Bank
There are 189 member countries that are shareholders in the IBRD, the primary arm of
the WBG. To become a member, however, a country must first join the International
Monetary Fund (IMF). The size of the World Bank's shareholders, like that of the IMF's
shareholders, depends on the size of a country's economy. Thus, the cost of a
subscription to the World Bank is a factor of the quota paid to the IMF.

Joining the IMF comes with a variety of responsibilities that help it carry out its functions.
There is an obligatory subscription fee, which is equivalent to 88.29% of the quota that a
country has to pay to the IMF. In addition, a country is obligated to buy 195 World Bank
shares (US$120,635 per share, reflecting a capital increase made in 1988). Of these 195
shares, 0.60% must be paid in cash in U.S. dollars, while 5.40% can be paid in a country's
local currency, in U.S. dollars, or in non-negotiable non-interest bearing notes. The
balance of the 195 shares is left as "callable capital," meaning the World Bank
reserves the right to ask for the monetary value of these shares when and if necessary.
A country can subscribe a further 250 shares, which do not require payment at the time
of membership but are left as "callable capital."

The president of the World Bank comes from the largest shareholder, which is the United
States, and members are represented by a board of governors. Throughout the year,
however, powers are delegated to a board of 24 executive directors (EDs). The five
largest shareholders—the U.S., U.K., France, Germany, and Japan—each have an
individual ED, and the additional 19 EDs represent the rest of the member states as
groups of constituencies. Of these 19, however, China, Russia, and Saudi Arabia have
opted to be single-country constituencies, which means that they each have one
representative within the 19 EDs. This decision is based on the fact that these countries
have large, influential economies, requiring that their interests be voiced individually
rather than diluted within a group. The World Bank gets its funding from rich countries,
as well as from the issuance of bonds on the world's capital markets.

The World Bank serves two mandates:

 To end extreme poverty, by reducing the share of the global population that
lives in extreme poverty to 3% by 2030.
 To promote shared prosperity, by increasing the incomes of the poorest 40% of
people in every country.

The Parts That Make Up the Whole

The IBRD offers assistance to middle-income and poor, but creditworthy, countries. It
also works as an umbrella for more specialized bodies under the World Bank. The IBRD
was the original arm of the World Bank that was responsible for the reconstruction of
post-war Europe. Before gaining membership in the WBG's affiliates (the International
Development Association, the International Finance Corporation, the Multilateral
Investment Guarantee Agency, and the International Centre for Settlement of
Investment Disputes), a country must be a member of the IBRD.

The International Development Association offers loans to the world's poorest countries.
These loans come in the form of "credits" and are essentially interest-free. They offer a
10-year grace period and hold a maturity of 35 years to 40 years.

The International Finance Corporation (IFC) works to promote private sector investments
by both foreign and local investors. It provides advice to investors and businesses, and it
offers normalized financial market information through its publications, which can be
used to compare across markets. The IFC also acts as an investor in capital markets and
will help governments privatize inefficient public enterprises.

The Multilateral Investment Guarantee Agency (MIGA) supports direct foreign

investment into a country by offering security against the investment in the event of
political turmoil. These guarantees come in the form of political risk insurance, meaning
that MIGA offers insurance against the political risk that an investment in a developing
country may bear.

Finally, the International Centre for Settlement of Investment Disputes facilitates and
works toward a settlement in the event of a dispute between a foreign investor and a
local country.

Adapting to the Times

As mentioned earlier, the main function of the WBG is to eliminate poverty and to
provide assistance to the poor by offering loans, policy advice, and technical
assistance. As such, the countries receiving aid are learning new ways to function. Over
time, however, it has been realized that sometimes as a nation develops, it requires
more aid to work its way through the development process. This has resulted in some
countries accumulating so much debt and debt service that payments become
impossible to meet. Many of the poorest countries can receive accelerated debt relief
through the Heavily Indebted Poor Countries scheme, which reduces debt and debt-
service payments while encouraging social expenditure.

Another issue on which the Bank has recently been focusing has presented itself as an
endangerment to a country's livelihood: support programs for HIV/AIDS. The WBG has
also been focusing on reducing the risk of projects by means of better appraisal and
supervision mechanisms, as well as a multidimensional approach to overall
development. (This includes not only lending but also support for legal reform,
educational programs, environmental safety, anti-corruption measures, and other types
of social development.)

The Bank encourages all its clients to implement policies that promote sustainable
growth, health, education, social development programs focusing on governance and
poverty reduction mechanisms, the environment, private business, and
macroeconomic reform.

Opposition to the Bank

While WBG strives to create a poverty-free world, there are groups that are passionately
opposed to the international patron. These opponents believe that the fundamental
structure of the Bank only exacerbates the already existing imbalance between the
world's rich and poor. The system allows the largest shareholders to dominate the vote,
resulting in WBG policies being decided by the rich, but implemented by the poor.

This can result in policies that are not in the best interests of the developing country
receiving assistance, whose political, social, and economic policies will often have to
be molded around WBG resolutions. Moreover, even though the Bank provides training,
assistance, information, and other means that may lead to sustainable development,
opponents have observed that developing countries often have to put health,
education, and other social programs on hold in order to pay back their loans.

Opposition groups have protested by boycotting World Bank bonds. These are the
bonds that the WBG sells on global capital markets to raise money for some of its
activities. These opposition groups also call for an end to all practices that require a
country to implement structural adjustment programs (including privatization and
government austerity measures), an end to the debt owed by the poorest of the poor,
and an end to environmentally damaging projects such as mining or building dams.

The Bottom Line

It is not surprising that there is a clash of opinion over how aid is given. Indeed, those
that offer assistance are going to want to have a say in how the loans are used and
what kind of economic policies are fostered in a country's developmental process.
Many developing and poor nations, however, are stuck in a quagmire of debt and
impoverishment, no matter how much assistance they receive. Given this, we may
need to remember that the process of aid is also a developing state, in which both the
giver and the receiver should be helping each other reach a poverty-free world.
ORGANIZATION

Five Institutions, One Group

The World Bank Group consists of five organizations:

 The International Bank for Reconstruction and Development

The International Bank for Reconstruction and Development (IBRD) lends to

governments of middle-income and creditworthy low-income countries.

 The International Development Association

The International Development Association (IDA) provides interest-free loans —

called credits — and grants to governments of the poorest countries.

 Together, IBRD and IDA make up the World Bank.

 The International Finance Corporation

The International Finance Corporation (IFC) is the largest global development

institution focused exclusively on the private sector. We help developing
countries achieve sustainable growth by financing investment, mobilizing capital
in international financial markets, and providing advisory services to businesses
and governments.

 The Multilateral Investment Guarantee Agency

The Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to

promote foreign direct investment into developing countries to support
economic growth, reduce poverty, and improve people’s lives. MIGA fulfills this
mandate by offering political risk insurance (guarantees) to investors and
lenders.

 The International Centre for Settlement of Investment Disputes

The International Centre for Settlement of Investment Disputes (ICSID) provides

international facilities for conciliation and arbitration of investment disputes.