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The World Bank is an international financial institution that provides leveraged loans to poorer countries for capital programs. The World Bank has a stated goal of reducing poverty.
The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA). Whereas the latter incorporates these two in addition to three more:
International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes (ICSID).
The World Bank is one of two major institutions created as a result of the Bretton Woods Conference in 1944. The International Monetary Fund, a related but separate institution, is the second. Delegates from a wide variety of countries attended the Bretton Woods Conference, but the most powerful countries in attendance, the United States and United Kingdom, mainly shaped negotiations.
From its conception until 1967 the bank undertook a relatively low level of lending. Fiscal conservatism and careful screening of loan applications was generally accepted practice at the World Bank during this early period. Bank staff attempted to balance the priorities of providing loans for reconstruction and development with the need to instill confidence in the bank as a reliable institution suitable for investment.
Bank president John McCloy selected France to be the first recipient of World Bank aid; two other applications presented at this time from Poland and Chile were rejected. The loan was for $987 million, half the amount requested, and came with strict conditions. Staff from the World Bank monitored the end use of the funds, ensuring that the French government would present a balanced budget and give priority of debt repayment to the World Bank over other foreign governments. The United States State Department also acted at this time to inform the French Government that Communist elements within the Cabinétte needed to be removed. The French Government complied with this request and removed the Communist elements from the 1947 coalition government. Within hours of this event the loan to France was approved.
The Marshall Plan of 1947 caused lending practices at the bank to be altered, as many European countries received aid that competed directly with World Bank loans. Emphasis was shifted to non-European countries and, up until 1968, loans were primarily earmarked for projects that would directly enable a borrower country to repay loans (such projects as ports, highway systems, and power plants).
From 1968 to 1980 the bank focused on poverty alleviation and meeting the basic needs of people in the developing world. During this period, the size and number of loans to borrower nations was greatly increased as the spectrum of loan targets expanded from infrastructure into social services and other sectors.
These changes can, to a large extent, be attributed to Robert McNamara who assumed the presidency in 1968 after being appointed by U.S. president Lyndon B. Johnson. McNamara imported a technocratic managerial style to the Bank that he had employed during periods he had spent serving as United States Secretary of Defense and President of the Ford Motor Company. McNamara shifted the focus of bank policy toward measures such as building schools and hospitals, improving literacy rates, and conducting large-scale agricultural reform. McNamara created a new system of gathering information from potential borrower nations that enabled the bank to process loan applications at a much faster rate. To finance the increased loan volume, McNamara tasked bank treasurer Eugene Rotberg to seek out new sources of capital outside of the northern banks that had previously been the primary sources of bank funding. Rotberg used the global bond market to greatly increase the amount of capital available to the bank. One consequence of the period of poverty alleviation lending was the rapid rise of third world debt. From 1976 to 1980 developing world debt rose at an average annual rate of 20%.
In 1980 A.W. Clausen replaced Robert McNamara as World Bank president after being nominated by US President Jimmy Carter. Clausen replaced a large number of bank staffers who had been active during the McNamara era and instituted a new ideological focus in the bank. The replacement of Chief Economist Hollis B. Chenery by Anne Krueger in 1982 marked a notable policy shift at the bank. Krueger was known for her criticism of development funding as well as third world governments as rent-seeking states.
Lending for the purposes of servicing third world debt largely marked the period of 1980–1989. Structural adjustment policies aimed at streamlining the economies of developing nations (largely at the expense of health and social services reductions) were also a large part of World Bank policy during this period. UNICEF reported in the late 1980s that the structural adjustment programs of the World Bank were responsible for the “reduced health, nutritional, and educational levels for tens of millions of children in Asia, Latin America, and Africa”.
From 1989 to present, World Bank policy has shifted greatly, largely in response to criticism from a plurality of groups. Environmental groups and NGOs are often now integrated into the lending practices of the bank in order to mitigate the negative results of the previous era that prompted such harsh criticism. Bank projects now explicitly embrace a "green" focus.
Millennium Development Goals
The World Bank's current focus is on the achievement of the Millennium Development Goals (MDGs), lending primarily to "middle-income countries" at interest rates which reflect a small mark-up over its own (AAA-rated) borrowings from capital markets; while the IDA provides low or no interest loans and grants to low income countries with little or no access to international credit markets. The IBRD is a market-based nonprofit organization, using its high credit rating to make up for the relatively low interest rate on its loans, while the IDA is funded primarily by periodic "replenishments" (grants) voted to the institution by its more affluent member countries.
The President of the Bank, currently Robert B. Zoellick, is responsible for chairing the meetings of the Boards of Directors and for overall management of the Bank. Traditionally, the Bank President has always been a US citizen nominated by the United States, the largest shareholder in the bank. The nominee is subject to confirmation by the Board of Governors, to serve for a five-year, renewable term.
The Executive Directors, representing the Bank's member countries, make up the Board of Directors, usually meeting twice a week to oversee activities such as the approval of loans and guarantees, new policies, the administrative budget, country assistance strategies and borrowing and financing decisions.
The Vice Presidents of the Bank are its principal managers, in charge of regions, sectors, networks and functions. There are 24 Vice-Presidents, three Senior Vice Presidents and two Executive Vice Presidents.
The International Bank for Reconstruction and Development (IBRD) has 186 member countries, while the International Development Association (IDA) has 168 members.
Each member state of IBRD should be also 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).
Poverty reduction strategies
For the poorest developing countries in the world the bank’s assistance plans are based on poverty reduction strategies; by combining a cross-section of local groups with an extensive analysis of the country’s financial and economical situation the World Bank develops a strategy pertaining uniquely to the country in question. The government then identifies the country’s priorities and targets for the reduction of poverty, and the World Bank aligns its aid efforts correspondingly.
The bank supports certain kinds of poor people's organisations such as the Self-Employed Women's Union and Shack/Slum Dwellers International.
Forty-five countries pledged US$25.1 billion in "aid for the world's poorest countries", aid that goes to the World Bank International Development Association (IDA) which distributes the gifts to eighty poorer countries. While wealthier nations sometimes fund their own aid projects, including those for diseases, and although IDA is the recipient of criticism, Robert B. Zoellick, the president of the World Bank, said when the gifts were announced on December 15, 2007, that IDA money "is the core funding that the poorest developing countries rely on".
Clean Technology Fund management
The World Bank has been assigned temporary management responsibility of the Clean Technology Fund (CTF), focused on making renewable energy cost-competitive with coal-fired power as quickly as possible, but this may not continue after UN's Copenhagen climate change conference in December, 2009, because of the Bank's continued investment in coal-fired power plants.
Country assistance strategies
As a guideline to the World Bank's operations in any particular country, a Country Assistance Strategy is produced, in cooperation with the local government and any interested stakeholders and may rely on analytical work performed by the Bank or other parties.
The World Bank has long been criticized by a range of non-governmental organizations and academics, including its former Chief Economist Joseph Stiglitz, who is equally critical of the International Monetary Fund, the US Treasury Department, US and other developed country trade negotiators, and indigenous rights groups, such as Survival International.
[See Joseph Stiglitz, ''The Roaring Nineties'', ''Globalization and Its Discontents'', and ''Making Globalization Work''.] Critics argue that the so-called 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. [Ibid. ]
In ''Masters of Illusion: The World Bank and the Poverty of Nations'' (1996), Catherine Caufield argues that the assumptions and structure of the World Bank operation in the end harms southern nations rather than promoting them. Caufield first criticizes the highly homogenized and Western recipes of "development" held by the Bank. To the World Bank, different nations and regions are indistinguishable, and ready to receive the "uniform remedy of development". She argues 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.
A number of intellectuals in developing countries have argued that the World Bank is deeply implicated in contemporary modes of donor and NGO-driven imperialism and that its intellectual contribution functions, primarily, to seek to blame the poor for their condition.
One of the strongest criticisms of the World Bank has been the way in which it is governed. While the World Bank represents 184 countries, it is run by a small number of economically powerful countries. These countries choose the leadership and senior management of the World Bank and as such, their interests are dominant within the bank.
The World Bank has dual roles that are often contradictory: that of a political organization and that of an action-oriented organization. As a political organization, the World Bank must meet the demands of donor and borrowing governments, private capital markets as well as other international organizations. As an action-oriented organization, it must fulfill the role of a neutral organization specialized in delivering development aid, technical assistance, and loans. These dual roles are often inconsistent with one another. The World Bank’s obligations to donor countries and private capital markets have caused it to adopt policies and programs that endorse liberal economic theory which dictates that poverty is best alleviated by the implementation of market-oriented policies.
In the 1990s the World Bank and the IMF forged the Washington Consensus, a set of policies which included deregulation and liberalization of markets, privatization and the downscaling of government. Though the Washington Consensus was conceived as a policy that would best promote development, it was criticized for ignoring issues such as equity, employment and how reforms, such as privatization, were carried out. Many now agree that the Washington Consensus placed too much emphasis on the growth of GDP and not enough on the sustainability of that growth; economically, socially, politically and environmentally, or on questioning whether or not this growth actually contributed to increased living standards.
Some analysis shows that the World Bank has increased poverty and been detrimental to the environment, public health, and cultural diversity. Some critics also claim that the World Bank has consistently pushed a neoliberal agenda, imposing policies on developing countries which have been damaging, destructive and anti-developmental.
It has also been suggested that the World Bank is an instrument for the promotion of US or Western interests in certain regions of the world. Consequently, seven South American nations have established the Bank of the South in order to minimize US influence in the region.
[[http://news.bbc.co.uk/2/hi/business/7034939.stm BBC NEWS | Business | New South American bank planned]] Criticisms of the structure of the World Bank refer to the fact that the President of the Bank is always a citizen of the United States, nominated by the President of the United States (though subject to the approval of the other member countries). There have been accusations that the decision-making structure is undemocratic, as the US effectively has a veto on some constitutional decisions with just over 16% of the shares in the bank; moreover, decisions can only be passed with votes from countries whose shares total more than 85% of the bank's shares. A further criticism concerns internal governance and the manner in which the World Bank is alleged to lack transparency to external publics.
Criticism of the World Bank often takes the form of protesting as seen in recent events such as the World Bank Oslo 2002 Protests, the October Rebellion,
and the Battle of Seattle. Such demonstrations have occurred all over the world, even amongst the Brazilian Kayapo people.
In 2008, a World Bank report which found that biofuels had driven food prices up 75% was not published. Officials confided that they believed it was withheld from publication to avoid embarrassing the President of the United States, George W. Bush.
The World Bank has been critiqued for the manner in which it engages in “the production, accumulation, circulation, and functioning” of knowledge. The Bank’s process in the production of knowledge has become integral to the funding and justification of large capital projects . The Bank relies on “a growing network of translocal scientists, technocrats, NGOs, and empowered citizens to help generate data and construct discursive strategies”. Its capacity to produce authoritative knowledge is a response to intense scrutiny of Bank projects resulting from the successes of growing anti-Bank and alternative-development movements. “Development has relied exclusively on one knowledge system, namely, the modern Western one. The dominance of this knowledge system has dictated the marginalization and disqualification of non-Western knowledge systems”. It has been remarked, that in these alternative knowledge systems researchers and activists might find alternative rationales to guide interventionist action away from Western (Bank) produced ways of thinking . Knowledge production has become an asset to the Bank and “it is generated and used in highly strategic ways” to provide justifications for development.
The impact of structural adjustment policies on developing countries has been one of the most significant criticisms of the World Bank. The oil crisis in the late 1970s, the second in a decade, plunged many developing countries into economic crisis. The World Bank responded with structural adjustment loans which distributed aid to ailing countries while enforcing policy changes meant to mitigate domestic inflation and fiscal imbalance. Some of these policies included encouraging production, investment and labour-intensive manufacturing, changing real exchange rates and altering the distribution of government resources.
Structural adjustment policies were most effective in countries with an institutional framework already in place that allowed for these policies to be implemented more easily. [de Vries, Barend A. “The World Bank’s Focus on Poverty.” The World Bank: Lending on a Global Scale Eds. Jo Marie Griesgraber and Bernhard G. Gunter. London and Chicago: Pluto Press, 1996, pp.69.] For some countries, particularly in Sub-Saharan Africa, with or without the implementation of structural adjustment policies, economic growth regressed and inflation worsened. The alleviation of poverty was not a goal of structural adjustment loans and in fact, the circumstances of the poor often worsened due to a reduction in social spending and an increase in the price of food as subsidies were lifted.
By the late 1980s, international organizations began to recognize that structural adjustment policies were exacerbating the circumstances of the world’s poor. The World Bank responded by restructuring structural adjustment loans allowing for social spending to be maintained and encouraging a more gradual implementation of policies such as subsidy reductions and price changes. In 1999 the World Bank and the IMF introduced the Poverty Reduction Strategy Paper approach to replace structural adjustment loans. The Poverty Reduction Strategy Paper approach has been interpreted as an extension of structural adjustment policies as it continues to reinforce and legitimize global inequities. Neither approach has addressed the inherent flaws within the global economy that contribute to economic and social inequities within developing countries. By reinforcing the relationship between lending and client states, many believe that the World Bank has prevented indebted countries from implementing autonomous national economic policy.
Sociologist Michael Goldman has argued that “Industry analysts predict that private water will soon be a capitalized market as precious, and as war-provoking, as oil”. Goldman continues to argue “These days, an indebted country cannot borrow capital from the World Bank or IMF without a domestic water privatization policy as a precondition”. The Bank is utilizing “the 'Washington Consensus' model of development to promote water privatization. Following this model, the World Bank is forcing many countries to commodify their water resources, rather than using their expertise in the public sector to acknowledge water as a universal human right and an essential public service”. The push for water privatization development plays upon “the shocking tragedy that much of the world lacks access to affordable and clean water”. This image creates “new opportunities in development though it may have little to do with ultimately quenching” the needs of impoverished countries. “The problem of water scarcity for the world’s poor has been analyzed by the World Bank as one in which the public sector has failed to deliver and has therefore prevented development from “taking off” and the economy from modernizing. If the state cannot deliver something as basic as water and sanitation, the argument goes, it is a strong indication of a general failure of public-sector capacity”. However, “with the sale or lease of a public good comes more than simply a privatized service; alongside it comes a wide set of postcolonial institutional forces that intervenes in state-citizen relations and North-South dynamics”.
Business and political interests of main stakeholders
Although controversial and far from being proven, there is criticism that World Bank and IMF are used as a legitimized mean to fulfill business (interests of large corporations to enter the natural resource markets of the country and obtain the legal guarantees that it can stay there) or political needs of the main IMF donors (mostly USA), that were previously historically obtained by more direct activity - war, economic blockade, espionage. See for example Confessions of an Economic Hit Man.
Despite claiming goals of “good governance and anti-corruption″ the World Bank requires sovereign immunity out of countries it deals with.
Sovereign immunity waives a holder from all legal liability for their actions. It is proposed that this immunity from responsibility is a “shield to which [The World Bank] wants resort to for escaping accountability and security by the people.” [ As the United States has veto power, it can prevent the World Bank from taking any actions against its interests.]