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The World Bank

In this website and on www.infochangeindia.org you will often find references to the ‘World Bank’. Many people criticise and blame it for all kinds of things, but the Indian government and other poor countries depend on it and are eager to take the money it gives. What is the World Bank? Is it actually a bank, and can you go there to open an account and borrow money? Does it have a vault where gold is stored?

The World Bank is the largest public bank in the world, lending around US$ 25 billion a year to developing countries. It is one of the two financial institutions known as the Bretton Woods Institutions, the other being the International Monetary Fund (IMF). They were started at a meeting attended by 43 countries in a place called Bretton Woods in the USA, in 1944, just as World War II was getting over and the massive destruction it had caused was becoming obvious. The aim was to repair some of the damage and to promote international economic co-operation. It was felt that one of the causes of the war was the global economic depression just before the war and the constant small battles countries were fighting to establish trade. Some kind of global economic interaction seemed to be necessary to maintain international peace and security.

Though most of the leaders of the winning side in WWII were part of the meeting, the actual workings of both the institutions were designed by just three people: two Americans, US Treasury Secretary Henry Morganthau, his economic advisor Harry Dexter White, and the famous British economist, John Maynard Keynes.

The IMF was created to make international trade easier by making sure that all members’ monetary policies were compatible and that these policies helped different currencies be easily exchanged. The IMF also gives short-term financial help to countries having problems with their balance of payments. But the World Bank’s job was different; it was created to help make countries financially stronger by lending money to war-ravaged and impoverished countries for reconstruction and development projects. In fact the original and still official name of the World Bank is the International Bank for Reconstruction and Development (IBRD).

The World Bank is now actually made up of five separate organisations, all with the purpose of reducing poverty all over the world and facilitating economic growth: the International Development Association (IDA); the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the International Centre for the Settlement of Investment Disputes (ICSID). All of these come under the general administration of the World Bank, sharing a common board of governors and board of directors and working under the leadership of the World Bank president. The current president is the controversial Paul Wolfowitz.

The World Bank works by giving long-term loans to developing country governments for development projects, and to put into place economic reforms that are supposed to help the country’s economic growth. The Bank mainly lends to governments, although some bank facilities can also give directly to private businesses and to civil society organisations. Middle-income countries and poorer countries borrow from the IBRD, while the poorest countries with very low per capita incomes borrow from the IDA. The IFC provides money for private sector projects in developing countries through loans and buying shares by making available funds from international financial markets. The MIGA provides ‘risk insurance’ or guarantees to private investors to encourage foreign direct investment in developing countries, which they might otherwise not do because people are worried they will lose their money thanks to instability in a country. The International Centre for the Settlement of Investment Disputes (ICSID), as its name suggests, works to settle disputes pertaining to international finance.

The main office of the World Bank Group is in Washington DC and it has 183 member countries. Voting power on the Bank’s board is based on what is called the members’ “capital subscriptions”, meaning how much money they make available to the Bank for its work. This of course means that the members with the greatest financial contributions have the greatest say in the Bank’s decision-making process. The US government holds 20% of the vote while the 47 sub-Saharan African countries have only 7% of votes together. The president is usually someone suggested by the US government.

Each member country contributes 2% of its subscription in gold or US dollars and 18% in its own national currency. The World Bank then sells bonds based on these contributions to raise money for its loans. Loans were originally supposed to be given only to specific projects, usually infrastructure projects, such as the construction of highways, dams, and power generation, and social welfare projects like health and education. But in 1980 the World Bank started a new kind of lending -- loans were provided to countries for social, structural and sectoral reforms, for example for the development of national financial and judicial institutions. These are known as “adjustment lending” and are part of the programme for “structural adjustment”. The point of these loans is that they are given with conditions attached. These conditions are supposed to help ensure that countries pay back their loans by making changes in their national polices, changes that will help the country generate money.

Most criticism of the World Bank is usually about these lending policies since they have an enormous social and economic impact on the local populations of countries taking the loans. Poor borrowing countries have to accept these conditions or else they won’t get the money. The conditions are geared towards making money rather than just helping the country achieve its development goals. Often these conditions are related to opening trade and markets to foreign countries and ensuring less power to the county’s governments by deregulation and privatisation of industries. Privatisation of essential services such as water, health and education may mean that instead of being seen as essential they are seen as a money-making business which only caters to those who can afford them, so the poor are cut off from such services. Other criticism stems from the fact that in their rush to take money, countries often ignore the environmental impacts of projects financed by the World Bank; people feel that such a powerful institution should be more proactive about environmental protection and set high standards and insist that countries follow them.

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