The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries. The group is the largest development bank in the world. It is headquartered in Washington, D.C., United States. The bank's stated mission is to achieve the twin goals of ending extreme poverty and building shared prosperity. Historically, within the group, the IBRD and IDA were collectively known as the World Bank due to their emphasis on global lending.
The World Bank was established along with the International Monetary Fund at the 1944 Bretton Woods Conference. Initially, its loans helped rebuild countries devastated by World War II. Over time, it has shifted its focus to development, with a stated mission of eradicating extreme poverty and boosting shared prosperity. It has been criticized for its structural adjustment programs, governence, environmental record, and policies detrimental to the social welfare.
The group comprises five organizations, as established over time:
International Bank for Reconstruction and Development (IBRD), 1944
International Development Association (IDA), 1960
International Finance Corporation (IFC), 1956
International Centre for Settlement of Investment Disputes (ICSID), 1965
Multilateral Investment Guarantee Agency (MIGA), 1988
History
The World Bank was created at the 1944 Bretton Woods Conference (1–22 July 1944), along with the International Monetary Fund (IMF). The president of the World Bank is traditionally an American. The World Bank and the IMF are both based in Washington, D.C., and work closely with each other.
Although many countries were represented at the Bretton Woods Conference, the United States and United Kingdom were the most powerful in attendance and dominated the negotiations. The intention behind the founding of the World Bank was to provide temporary loans to low-income countries that could not obtain loans commercially. The bank may also make loans and demand policy reforms from recipients.
The agreement at Bretton Woods implied that both the World Bank and IMF would be headquartered in the United States. US Treasury Secretary Henry Morgenthau Jr. intended them to be located in New York, but his successor Fred M. Vinson unilaterally decided that they would be in Washington, D.C. instead, noting that "the institutions would be fatally prejudiced in American opinion if they were placed in New York, since they would then come under the taint of 'international finance'". The World Bank Group came into formal existence on 27 December 1946, following international ratification of the Bretton Woods agreements. The Conference also provided the foundation of the Osiander Committee in 1951, responsible for the preparation and evaluation of the World Development Report. Commencing operations on 25 June 1946, the bank approved its first loan on 9 May 1947 (US$250 million to France for postwar reconstruction - in real terms, the largest loan the bank has issued to date).
In its early years, the bank made a slow start for two reasons: it was underfunded, and there were leadership struggles between the US executive director and the president of the organization. When the Marshall Plan went into effect in 1947, many European countries began receiving aid from other sources. Faced with this competition, the World Bank shifted its focus to non-European allies. Until 1968, its loans were earmarked for the construction of infrastructure works, such as seaports, highway systems, and power plants, that would generate enough income to enable a borrower country to repay the loan. In 1960, the International Development Association was formed (as opposed to a UN fund named SUNFED), providing soft loans to developing countries.
Before 1974, the reconstruction and development loans the World Bank made were relatively small. Its staff was aware of the need to instill confidence in the bank. Fiscal conservatism ruled, and loan applications had to meet strict criteria.
The first country to receive a World Bank loan was France in 1947. The bank's president at the time, John McCloy, chose France over two other applicants, Poland and Chile. The loan was for US$250 million, half the amount requested, and came with strict conditions. France had to agree to produce a balanced budget and give priority of debt repayment to the World Bank over other governments. World Bank staff closely monitored the use of the funds to ensure that the French government met the conditions. In addition, before the loan was approved, the United States Department of State told the French government that its members associated with the Communist Party would first have to be removed. The French government complied and removed the Communist coalition government—the so-called tripartite. Within hours, the loan to France was approved.
From 1974 to 1980, the bank concentrated on meeting the basic needs of people in the developing world. The size and number of loans to borrowers greatly increased, as loan targets expanded from infrastructure into social services and other sectors.
These changes can be attributed to Robert McNamara, who was appointed to the presidency in 1968 by Lyndon B. Johnson. McNamara implored bank treasurer Eugene Rotberg to seek out new sources of capital outside of the northern banks that had been the primary sources of funding. Rotberg used the global bond market to increase the capital available to the bank. One consequence of the period of poverty alleviation lending was the rapid rise of debt of developing countries. From 1976 to 1980, developing world debt rose at an average annual rate of 20%.
The World Bank Administrative Tribunal was established in 1980, to decide on disputes between the World Bank Group and its staff where allegation of non-observance of contracts of employment or terms of appointment had not been honored.
McNamara was succeeded by U.S. President Jimmy Carter's nominee, Alden W. Clausen, in 1980. Clausen replaced many members of McNamara's staff and crafted a different mission emphasis. His 1982 decision to replace the bank's Chief Economist, Hollis B. Chenery, with Anne Krueger was an example of this new focus. Krueger was known for her criticism of development funding and for describing developing countries' governments as "rent-seeking states".
During the 1980s, the bank emphasized lending to service debt of developing countries, and structural adjustment policies designed to streamline the economies of developing nations. UNICEF reported in the late 1980s that the structural adjustment programs of the World Bank had been responsible for "reduced health, nutritional and educational levels for tens of millions of children in Asia, Latin America, and Africa".
Membership
The International Bank for Reconstruction and Development (IBRD) has 189 member countries, while the International Development Association (IDA) has 175. Each member state of IBRD should also be a member of the International Monetary Fund (IMF) and only members of IBRD are allowed to join other institutions within the bank (such as IDA). The five United Nations member states that are not members of the World Bank are Andorra, Cuba, Liechtenstein, Monaco, and North Korea. Kosovo is not a member of the UN, but is a member of the IMF and the World Bank Group, including the IBRD and IDA. Other non-members are Palestine, the Holy See (Vatican City), Taiwan, and the following de facto states: Abkhazia, Northern Cyprus, the Sahrawi Arab Democratic Republic, Somaliland, South Ossetia, and Transnistria.
The Republic of China joined the World Bank on 27 December 1945. After the Chinese Civil War, the government fled to Taiwan and continued its membership in the WBG until 16 April 1980, when the People's Republic of China replaced the ROC. Since then, it uses the name "Taiwan, China".
All of the 188 UN members and Kosovo that are WBG members participate at a minimum in the IBRD. As of May 2016, all of them also participate in some of the other four organizations (IDA, IFC, MIGA, and ICSID).
WBG members by the number of organizations in which they participate:
Only in the IBRD:
The IBRD and one other organization: Nauru, San Marino
The IBRD and two other organizations: Antigua and Barbuda, Brunei, Kiribati, Marshall Islands, Namibia, Tuvalu, Venezuela
The IBRD and three other organizations: India, Mexico, Belize, Jamaica, Dominican Republic, Brazil, Bolivia, Uruguay, Ecuador, Dominica, Saint Vincent and the Grenadines, Guinea-Bissau, Equatorial Guinea, Angola, South Africa, Seychelles, Libya, Somalia, Ethiopia, Eritrea, Djibouti, Bahrain, Qatar, Iran, Malta, Poland, Russia, Belarus, Kyrgyzstan, Tajikistan, Turkmenistan, Thailand, Laos, Vietnam, Palau, Tonga, Vanuatu, Maldives, Bhutan, Myanmar, Suriname
All five WBG organizations: the rest of the 139 WBG members
Voting power
In 2010, voting powers at the World Bank were revised to increase the voice of developing countries, notably China. The countries with most voting power are now the United States (15.85%), Japan (6.84%), China (4.42%), Germany (4.00%), the United Kingdom (3.75%), France (3.75%), India (2.91%), Russia (2.77%), Saudi Arabia (2.77%) and Italy (2.64%). Under the changes, known as 'Voice Reform – Phase 2', countries other than China that saw significant gains included South Korea, Turkey, Mexico, Singapore, Greece, Czech Republic, Hungary, Brazil, India, and Spain. Most developed countries' voting power was reduced, along with a few developing countries such as Nigeria. The voting powers of the United States, Russia and Saudi Arabia remained unchanged.
The changes were brought about to make voting more universal in regards to standards, rule-based objective indicators, and transparency among other things. Now, developing countries have an increased voice in the "Pool Model", backed especially by Europe. Additionally, voting power is based on economic size in addition to the International Development Association contributions.
List of 20 largest countries by voting power in each World Bank institution
The following table shows the subscriptions of the top 20 member countries of the World Bank by voting power in the following World Bank institutions as of December 2014 or March 2015: the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the International Development Association (IDA), and the Multilateral Investment Guarantee Agency (MIGA). Member countries are allocated votes at the time of membership and subsequently for additional subscriptions to capital (one vote for each share of capital stock held by the member).
Organizational structure
Together with four affiliated agencies created between 1957 and 1988, the IBRD is part of the World Bank Group. The group's headquarters are in Washington, D.C. It is an international organization owned by member governments; although it makes profits, they are used to support continued efforts in poverty reduction.
Technically the World Bank is part of the United Nations system, but its governance structure is different: each institution in the World Bank Group is owned by its member governments, which subscribe to its basic share capital, with votes proportional to shareholding. Membership gives certain voting rights that are the same for all countries but there are also additional votes that depend on financial contributions to the organization. The president of the World Bank is nominated by the president of the United States and elected by the bank's Board of Governors. As of 15 November 2009, the United States held 16.4% of total votes, Japan 7.9%, Germany 4.5%, the United Kingdom 4.3%, and France 4.3%. As changes to the bank's Charter require an 85% supermajority, the U.S. can block any major change in the bank's governing structure. Because the U.S. exerts formal and informal influence over the bank as a result of its vote share, control over the presidency, and the bank's headquarters location in Washington, D.C., friends and allies of the U.S. receive more projects with more lenient terms.
World Bank Group agencies
The World Bank Group consists of
the International Bank for Reconstruction and Development (IBRD), established in 1944, which provides debt financing based on sovereign guarantees;
the International Finance Corporation (IFC), established in 1956, which provides various forms of financing without sovereign guarantees, primarily to the private sector;
the International Development Association (IDA), established in 1960, which provides concessional financing (interest-free loans or grants), usually with sovereign guarantees;
the International Centre for Settlement of Investment Disputes (ICSID), established in 1965, which works with governments to reduce investment risk;
the Multilateral Investment Guarantee Agency (MIGA), established in 1988, which provides insurance against certain types of risk, including political risk, primarily to the private sector.
The term "World Bank" generally refers to just the IBRD and IDA, whereas the term "World Bank Group" or "WBG" is used to refer to all five institutions collectively.
The World Bank Institute is the capacity development branch of the World Bank, providing learning and other capacity-building programs to member countries.
The IBRD has 189 member governments, and the other institutions have between 153 and 184. The institutions of the World Bank Group are all run by a board of governors meeting once a year. Each member country appoints a governor, generally its minister of finance. Daily, the World Bank Group is run by a board of 25 executive directors to whom the governors have delegated certain powers. Each director represents either one country (for the largest countries), or a group of countries. Executive directors are appointed by their respective governments or the constituencies.
The agencies of the World Bank are each governed by their Articles of Agreement that serves as the legal and institutional foundation for all their work.
The activities of the IFC and MIGA include investment in the private sector and providing insurance, respectively.
Presidency
Traditionally, the bank president has been a U.S. citizen nominated by the president of the United States, the bank's largest shareholder. The nominee is subject to confirmation by the executive directors, to serve a five-year, renewable term.
Current president
Ajay Banga is the current and 14th president of the World Bank Group.
Managing director
The World Bank Group has several Managing Directors, each with different areas of responsibility. These responsibilities include organizational strategy; budget and strategic planning; information technology; shared services; Corporate Procurement; General Services and Corporate Security; the Sanctions System; and the Conflict Resolution and Internal Justice System.
Extractive Industries Review
After longstanding criticisms from civil society of the bank's involvement in the oil, gas, and mining sectors, the World Bank in July 2001 launched an independent review called the Extractive Industries Review (EIR—not to be confused with Environmental Impact Report). The review was headed by an "Eminent Person", Emil Salim (former Environment Minister of Indonesia). Salim held consultations with a wide range of stakeholders in 2002 and 2003. The EIR recommendations were published in January 2004 in a final report, "Striking a Better Balance". The report concluded that fossil fuel and mining projects do not alleviate poverty, and recommended that World Bank involvement with these sectors be phased out by 2008 to be replaced by investment in renewable energy and clean energy. The World Bank published its Management Response to the EIR in September 2004 after extensive discussions with the board of directors. The Management Response did not accept many of the EIR report's conclusions, but the EIR served to alter the World Bank's policies on oil, gas, and mining in important ways, as the World Bank documented in a recent follow-up report. One area of particular controversy concerned the rights of indigenous peoples. Critics point out that the Management Response weakened a key recommendation that indigenous peoples and affected communities should have to provide 'consent for projects to proceed; instead, there would be 'consultation'. Following the EIR process, the World Bank issued a revised Policy on Indigenous Peoples.
Methods
The World Bank plays a significant role in global economic governance due to its broad mandate, its vast resource base, its frequent and regular interactions with governments as clients, and its many publications and databases. In 2020, the World Bank's total commitments amounted to USD 77.1 billion and it operated in 145 countries. World Bank projects cover a range of areas from building schools to fighting disease, providing water and electricity, and environmental protection.