World Bank Group

World Bank Group logo.

The World Bank Group is a group of five international organizations responsible for providing finance and advice to countries for the purposes of economic development and poverty reduction, and for encouraging and safeguarding international investment. The group and its affiliates have their headquarters in Washington, D.C., with local offices in 124 member countries.

Together with the separate International Monetary Fund, the World Bank organizations are often called the "Bretton Woods" institutions, after Bretton Woods, New Hampshire, where the United Nations Monetary and Financial Conference that led to their establishment took place (1 July-22 July 1944).

The Bank came into formal existence on 27 December 1945 following international ratification of the Bretton Woods agreements. Commencing operations on 25 June 1946, it approved its first loan on 9 May 1947 ($250m to France for postwar reconstruction, in real terms the largest loan issued by the Bank to date). Its five agencies are the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), International Development Association (IDA), Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID).

The World Bank's activities are focused on developing countries, in fields such as human development (e.g. education, health), agriculture and rural development (e.g. irrigation, rural services), environmental protection (e.g. pollution reduction, establishing and enforcing regulations), infrastructure (e.g. roads, urban regeneration, electricity), and governance (e.g. anti-corruption, legal institutions development). It provides loans at preferential rates to member countries, as well as grants to the poorest countries. Loans or grants for specific projects are often linked to wider policy changes in the sector or the economy. For example, a loan to improve coastal environmental management may be linked to development of new environmental institutions at national and local levels and to implementation of new regulations to limit pollution.

Work of the Bank

The World Bank has been subject to long-standing and strong criticism from a range of non-governmental organizations and from some academics. In some cases the Bank's own internal evaluations can produce negative conclusions. It has been accused of being a US or Western tool for imposing economic policies that support Western interests. Critics argue that the free market reform policies - which the Bank advocates in many cases - in practice are often harmful to economic development if implemented badly, too quickly ("shock therapy"), in the wrong sequence, or in very weak, uncompetitive economies. Nevertheless the World Bank is one of the most highly-regarded financial institutions in the world, especially in the field of development economics and related research. In addition, World Bank standards and methods have been adopted in many areas such as transparent procedures for competitive procurement and environmental standards for project evaluation. World Bank also engages in funding the education of promising young people from developing countries through its graduate scholarship programs.

In debates about the World Bank's role, the arguments and counter-arguments are complex, and often rely as much upon political judgement as economic proof. For example, in the 2005 Massey Lecture, entitled "Race Against Time", Stephen Lewis argued that the structural adjustment policies of the World Bank and the International Monetary Fund have aggravated and aided the spread of the AIDS pandemic through the limiting of allowed funding to health and education sectors. However, it should also be noted that the World Bank is a major source of funding for combating AIDS in poor countries, and in the past six years it has committed about US$ 2 billion through grants, loans and credits for programs to fight HIV/AIDS [1]).

Organizational structure

Inside the main hall of the headquarters of the World Bank Group in Washington D.C.

Together with four affiliated agencies created between 1956 and 1988, the IBRD is part of the World Bank Group. The Group's headquarters are in Washington, D.C.. It is a non-profit-making international organisation owned by member governments.

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 which depend on financial contributions to the organization.

As a result, the World Bank is controlled primarily by developed countries, while clients have almost exclusively been developing countries. Some critics argue that a different governance structure would take greater account of developing countries' needs. As of November 1, 2004 the United States held 16.4% of total votes, Japan 7.9%, Germany 4.5%, and the United Kingdom and France each held 4.3%. As major decisions require an 85% super-majority, the US can block any change.

World Bank Group agencies

The World Bank Group consists of
* the International Bank for Reconstruction and Development (IBRD), established in 1945,
* the International Finance Corporation (IFC), established in 1956,
* the International Development Association (IDA), established in 1960,
* the Multilateral Investment Guarantee Agency (MIGA), established in 1988 and
* the International Centre for Settlement of Investment Disputes (ICSID), established in 1966.

Governments can choose which of these agencies they sign up to individually. The IBRD has 184 member governments, and the other institutions have between 140 and 176 members. The institutions of the World Bank Group are all run by a Board of 24 Executive Directors, with each Director representing either one country (for the largest countries), or a group of countries. 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 serve as the legal and institutional foundation for all of their work [2].

The Bank also serves as one of several Implementing Agencies for the UN Global Environment Facility (GEF).

Presidency

The World Bank Group is headed by Paul Wolfowitz, appointed on June 1 2005. Wolfowitz, a former United States Deputy Secretary of Defense and well-known neo-conservative, was nominated by George W. Bush to replace James D. Wolfensohn. By convention, the Bank President has always been a US citizen, while the Managing Director of the IMF has been a European. Although nominated by the US Government, the World Bank President is subject to confirmation by the Board of Directors. The President serves a term of five years, which may be renewed.

Goals

The World Bank Group's mission is to fight poverty and improve the living standards of people in the developing world. It provides long term loans, grants, and technical assistance to help developing countries implement their poverty reduction strategies. As such, World Bank financing is used in many different areas, from reforms in health and education to environmental and infrastructure projects, including dams, roads, and national parks. In addition to financing, the World Bank Group provides advice and assistance to developing countries on almost every aspect of economic development.

Since 1996, with the appointment of James Wolfensohn as Bank President, the World Bank Group has been focused on combating corruption in the countries that it works in. This is outlined in the World Bank report 'Helping countries combat corruption: progress at the World Bank since 1997'[3]. This has been seen by some observers as a potential conflict with Article 10 Section 10 of the World Bank's Articles of Agreement which outlines the 'non-political' mandate of the Bank¹. The World Bank's view is that reduced corruption and improved governance are not so much political as economic goals and are crucial for sustainable development and poverty reduction ("Governance Matters IV: Governance Indicators for 1996â€"2004", D. Kaufmann, A. Kraay, M. Mastruzzi (World Bank 2005)[4])

In recent years the World Bank Group has been moving from targeting economic growth in aggregate, to aiming specifically at poverty reduction. It has also become more focused on support for small scale local enterprises. It has embraced the idea that clean water, education, and sustainable development are essential to economic growth and has begun investing heavily in such projects. In response to external critics, the World Bank Group's institutions have adopted a wide range of environmental and social safeguard policies, designed to ensure that their projects do not harm individuals or groups in client countries. Despite these policies, World Bank Group projects are frequently criticized by non-governmental organizations (NGOs) for alleged environmental and social damage and for not achieving their intended goal of poverty reduction.

Criticism

A young World Bank protester takes to the street in Jakarta, Indonesia.

Although relied upon by poor countries as a contributor of development finance, the World Bank is often criticized, primarily by opponents of corporate "neo-colonial" globalization. These advocates of alter-globalization fault the bank for undermining the national sovereignty of recipient countries through various structural adjustment programs that pursue economic liberalization and de-emphasize the role of the state.

A related critique is that the Bank operates under essentially "neo-liberal" principles. In this perspective, reforms born of "neo-liberal" inspiration are not always suitable for nations experiencing conflicts (ethnic wars, border conflicts, etc.), or that are long-oppressed (dictatorship or colonialism) and do not have stable, democratic political systems.

One general critique is that the Bank is under the marked political influence of certain countries (notably, the United States) that would profit from advancing their interests. In this point of view, the World Bank would favor the installation of foreign enterprises, to the detriment of the development of the local economy and the people living in this country.

Furthermore, it is frequently suggested that the Bank intervenes in order to salvage irresponsible loans from private institutions to third world governments (and which are also often corrupt and non-representative), and thus shifts the risk from the original risk-takers to the public of the rich countries, who ultimately must back the Bank.

In her book Masters of Illusion: The World Bank and the Poverty of Nations (1996), author Catherine Caufield makes a sharp criticism of the assumptions and structure of the World Bank operation, arguing that at the end it harms southern nations rather than promoting them. In terms of assumption, Caufield first criticizes the highly homogenized and Western recipes of "development" held by the Bank. To the WB, different nations and regions are indistinguishable, and ready to receive the "uniform remedy of development". The danger of this assumption is that to attain even small portions of success, western approaches to life are adopted and traditional economic structures and values are abandoned. A second assumption is that poor countries cannot modernize without money and advice from abroad. This generates a cycle of indebtedness that with the pay of interest means currently a net transfer from the poor to the rich nations of $1.7 billion yearly. In terms of the structure of the bank, Caufield criticize two elements. First, the structure of repayment; the Bank is a lender of foreign currency and demands to be repaid in the same currency. The borrower countries, in order to obtain the currencies to repay the loans, must sell to the rich countries more than they buy from them. However, the rich countries want to be net exporters, not importers. This generates "the transfer problem", often the only way of repaying loans is to engage in other loans, resulting in an accumulation of debts. Second, she criticizes the high influence of the bank over national sovereignty. As a condition of the credit, the Bank offers advice on how countries should manage their finances, make their laws, provide services, and conduct in the international market. The Bank has great power of persuasion, because if it decides to ostracize a borrower, other major international powers will follow the lead. Then, by excessive lending, the Bank has added to its own power and depleted that of its borrowers, generating an inconsistency with its mission.

John Perkins in Confessions of an Economic Hit Man sees the World Bank as an instrument of American imperial policy, providing loans to developing countries for projects that benefit a bribed ruling elite as well as American companies and making such countries subject to American influence and pressure.

Defenders of the World Bank point out that no country is forced to borrow its money. The Bank provides both loans and grants. Even the loans are concessional since they are given to countries that have no access to international capital markets. Furthermore, the loans, both to poor and middle-income countries, are at below market-value interest rates. The World Bank argues that it can help development more through loans than grants, because money repaid on the loans can then be lent for other projects. Finally, it has made a major effort in recent years to address criticism, particularly regarding the environment and corruption.

Evaluation at the World Bank

Social and environmental concerns

Throughout the period from 1972 to 1989, the Bank did not conduct its own environmental assessments and did not require assessments for every project that was proposed. Assessments were required only for a varying, small percentage of projects, with the environmental staff, in the early 1970s, sending check-off forms to the borrowers and, in the latter part of the period, sending more detailed documentation and suggestions for analysis.

During this same period, the Bank’s failure to adequately consider social environmental factors was most evident in the 1974 Indonesian Transmigration program (Transmigration V). This project was funded after the establishment of the Bank’s OESA (environmental) office in 1971. According to the Bank critic Le Prestre, Transmigration V was the “largest resettlement program ever attempted... designed ultimately to transfer, over a period of twenty years, 65 million of the nation’s 165 million inhabitants from the overcrowded islands of Java, Bali, Madura, and Lombok...” (175). The objectives were: relief of the economic and social problems of the inner islands, reduction of unemployment on Java, relocation of manpower to the outer islands, the “strengthen[ing of] national unity through ethnic integration, and improve[ment of] the living standard of the poor” (ibid, 175).

Putting aside the possibly Machiavellian politics of such a project, it otherwise failed as the new settlements went out of control; local populations fought with the migrators and the tropical forest was devastated (destroying the lives of indigenous peoples). Also, “[s]ome settlements were established in inhospitable sites, and failures were common;” these concerns were noted by the Bank's environmental unit whose recommendations (to Bank management) and analyses were ignored (Le Prestre, 176). Funding continued through 1987, despite the problems noted and despite the Bank’s published stipulations (1982) concerning the treatment of groups to be resettled.

More recent authors have pointed out that the World Bank learned from the mistakes of projects such as Transmigration V and greatly improved its social and environmental controls, especially during the 1990s. It has established a set of "Safeguard Policies" that set out wide ranging basic criteria that projects must meet to be acceptable. The policies are demanding, and as Mallaby (reference below) observes: "Because of the combined pressures from Northern NGOs and shareholders, the Bank's project managers labor under "safeguard" rules covering ten sensitives issues...no other development lender is hamstrung in this way" (page 389). The ten policies cover: Environmental Assessment, Natural Habitats, Forests, Pest Management, Cultural Property, Involuntary Resettlement, Indigenous Peoples, Safety of Dams, Disputed Areas, and International Waterways [5].

The Independent Evaluation Group

The Independent Evaluation Group (IEG) (formerly known as the Operations Evaluation Department (OED)) plays an important check and balance role in the World Bank. Similar in its role to the US Government's Government Accountability Office (GAO), it is an independent unit of the World Bank that reports evaluation findings directly to the Bank's Board of Executive Directors. IEG evaluations provide an objective basis for assessing the results of the Bank's work, and accountability of World Bank management to the member countries (through the World Bank Board) in the achievement of its objectives.

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", Dr. Emil Salim (former Environment Minister of Indonesia). Dr. 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 entitled "Striking a Better Balance",[6]. 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 [7] following extensive discussions with the Board of Directors. The Management Response did not accept many of the EIR report's conclusions. However, the EIR served to alter the World Bank's policies on oil, gas and mining in important ways, as has been documented by the World Bank in a recent follow-up report [8]. 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'.[9]. Following the EIR process, the World Bank issued a revised Policy on Indigenous Peoples [10].

Impact Evaluations

In recent years there has been an increased focus on measuring results of World Bank development assistance through impact evaluations. An impact evaluation assesses the changes in the well-being of individuals that can be attributed to a particular project, program or policy. Impact evaluations demand a substantial amount of information, time and resources. Therefore, it is important to select carefully the public actions that will be evaluated. One of the important considerations that could govern the selection of interventions (whether they be projects, programs or policies) for impact evaluation is the potential of evaluation results for learning. In general, it is best to evaluate interventions that maximize the learning from current poverty reduction efforts and provide insights for midcourse correction, as necessary.

An unwritten rule establishes that the IMF's managing director must be European and that the president of the World Bank must be from the United States.
* Eugene Meyer (June 1946–December 1946)
* John J. McCloy (March 1947–June 1949)
* Eugene R. Black (1949–1963)
* George D. Woods (January 1963–March 1968)
* Robert S. McNamara (April 1968–June 1981)
* Alden W. Clausen (July 1981–June 1986)
* Barber B. Conable (July 1986–August 1991)
* Lewis T. Preston (September 1991–May 1995)
* James Wolfensohn (May 1995–June 2005)
* Paul Wolfowitz (June 2005-Present)

List of chief economists

* Stanley Fischer - 1988-1990
* Lawrence Summers - 1991-1993
* Joseph E. Stiglitz - 1997â€"2000
* Nicholas Stern - 2000â€"2003
* FranÃ§ois Bourguignon - 2003-current

External links

* World Bank Group (website)
* World Bank (website)
* World Bank independent evaluation group (website)
* Eldis resources on the World Bank and IMF
*World Bank: Whose Bank and for Which World? by Dr. Mohammad Omar Farooq
* World Bank Group Presidents (website)
* World Bank and the Privatization of Public Education
* Bretton Woods 60th Anniversary Exhibition (website)
* Foundations of the World Bank: 1944-1948
* "Firsts" in World Bank History
* Affiliates of the World Bank
* Buildings of the World Bank
* World Bank Books
* EssayCompetition.org, an essay competition for youth aged 18-25 organized by the World Bank
* The Annual Bank Conference on Development Economics (ABCDE), organized by the World Bank in Tokyo, Japan, on May 29-30, 2006
* Doing Business project @ World Bank,a project benchmarking business regulation across 155 economies
* World Bank Group Private Sector Development Unit
* World Bank Group PSD Blog
* "I'm With Wolfowitz" Article by George Monbiot, April 2005
* "It is time to free the World Bank" Article by Jeffrey Sachs, March 2005
* Center for International Finance & Development University of Iowa research center, includes a 300 page E-book on the IMF and World Bank.

NGOs

* The Bank Information Center
* Mexican Council for Economic and Social Development
* The Scorecard on Development: 25 Years of Diminished Progress (CEPR)
* The Bretton Woods Project, monitoring the World Bank and IMF
* IFIwatchnet, monitoring the World Bank and IMF
* World Bank Bonds Boycott
* Bonds boycott campaign in Europe
* World Bank President
* Wolfowitz Watch

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