Description

08.12.00

The World Bank Group is an international financial institution based in Washington, D.C. that was created at the 1944 Bretton Woods conference that helped organize the postwar global economy. Strictly speaking, it is not a bank. Rather it is a development organization owned by its 181 member-governments, each having voting rights in proportion to their contributions to its capital base. It has more than 10,000 employees, with approximately 5,800 staff in Washington and the rest posted to regional offices in New York, London, Paris, Geneva and Tokyo or country mission offices in more than 70 countries.

The original mission of the World Bank was to aid the reconstruction of Europe after the devastation of the World War II and to assist the development of poor countries in the postwar period. But over time the Bank has evolved, along with its sister Bretton Woods institution, the International Monetary Fund, to play a much broader role in the global economy. Not only is it a primary source of capital for infrastructure projects in developing countries, it has become deeply involved in lending in support of Structural Adjustment Programs for countries in economic crisis as a result of excessive debt and/or international financial instability. As such, working people everywhere have a heavy stake in its activities and policies.

In 1999, the World Bank Group issued new loans worth $US 29 billion, earned a profit in excess of $US 1.5 billion and maintained a portfolio of outstanding loans of more than $US 200 billion.

The World Bank Group funds economic development projects, provides technical assistance and sponsors research on development policy, but it actually consists of five affiliated organizations, each with a somewhat different role in the Bank’s operations. A summary of each unit follows:

International Bank for Reconstruction and Development (IBRD). The IBRD is the institution created at Bretton Woods. It makes loans at near-market rates to developing countries to finance poverty reduction initiatives, infrastructure projects, and, increasingly, privatization programs. In addition, it offers policy advice on economic policy and development issues and provides technical assistance related to project design and implementation. The IBRD’s lending is financed through World Bank bonds which are sold internationally and guaranteed by member-governments. On average, the IBRD makes $US 25-30 billion in new loans each year.

International Development Association (IDA). The IDA was created as a concessional lending facility within the IBRD in 1960 and now has 160 member nations. It offers long-term, below-market or zero-interest rate loans to the poorest countries in the world -- those that cannot otherwise qualify for IBRD loans. IDA loans go to countries with per capital incomes of less than $US 900 annually. Proceeds from such loans are typically used to meet basic needs such as sanitation, health services and education, but may also be used to fund infrastructure and rural development. The IDA shares the IBRD’s staff and headquarters, but IDA loans are funded by voluntary contributions or "credits" from approximately 30 countries. Total IDA loans have averaged about $US 6.0 billion annually in recent years.

International Finance Corporation (IFC). The IFC is often referred to as the "private sector" arm of the World Bank. It was created in 1956 to encourage the development of private sector activity in developing countries and now has 174 member countries. The IFC lends directly to companies in developing member countries at market rates and without government guarantees. It also organizes syndicated loans in private capital markets to such companies and often takes quasi-equity stakes in private enterprises that invest in profitable projects that are likely to create jobs in host countries. The IFC has its own staff and resources, but coordinates its activities with the IBRD. It is funded through IFC bonds sold on the international market and through loans from the IBRD as well as from earnings on its investments. The IFC’s paid in capital is approximately $US 2.5 billion.

Multilateral Investment Guarantee Agency (MIGA). MIGA is the investment insurance affiliate of the World Bank. It was created in 1985 to promote foreign direct investment in developing countries by offering insurance against non-commercial risks to such investments. Expropriation, breach of contract and war are among the non-commercial or political risks MIGA covers. It has a capital stock of 1 billion in Special Drawing Rights (SDRs or approximately $US 1.33 billion) and working capital of $US 150 million from the IBRD.

International Centre for Settlement of Investment Disputes (ICSID). The ICSID is a small unit within the Bank which provides facilities for the settlement – by conciliation or arbitration – of investment disputes between foreign investors and their host countries. It has a membership of 151 nations.

The World Bank likens itself to a global cooperative whose shares are owned by member countries. The size of a country’s shareholding is set to equal its contribution to the global economy. Thus, the United States is the largest shareholder with 17 percent and the G-7* countries together control 45 percent of the Bank’s shares. Since it requires a vote of 85 percent of the shares to increase the capital base of the Bank or to change its Articles of Agreement, the G-7 governments in general and the U.S. government in particular can veto major changes in the structure of the Bank. However, the approval of loans and most policy matters require only a majority vote.

A Board of Governors made up of one government minister from each of the member countries meets twice year to set overall Bank policy. Day-to-day operations of the Bank are the responsibility of a 24-person Board of Executive Directors which is appointed by member countries. The five countries with the greatest number of shares -- the U.S., France, Britain, Japan and Germany -- appoint five of the Directors, while the other 19 positions are selected by other member-states that are organized in regional groupings. The Directors meet two or three times per week to review and approve projects and to manage the daily operations of the Bank.

The World Bank Group plays an important role in the global economy. It not only shapes economic policy in developing countries by placing conditions on the loans it offers, it also influences the flow of private capital to such countries since private investors and banks are reluctant to do business in countries that do not follow Bank’s policy advice. That advice has increasing stressed fiscal austerity, deregulation of business, privatization of state-owned enterprises and labor market flexibility.

The Bank’s role in the global economy expanded in the 1980s when, in partnership with the IMF, it financed dozens of so-called Structural Adjustment Programs that resulted from that decade’s debt crisis. This trend continued in the 1990s with the increasing instability of the international financial system -- most notably, the Bank played a critical role during the crises that followed the Mexican debt default of 1994-95 and the Asian financial panic of 1997-98.

Criticism of the Bank, the IMF and their neoliberal policies (the so-called Washington Consensus) -- most notably from the international labor movement and its allies in civil society in both developed and developing countries -- has led the World Bank to initiate a series of reforms in recent years. It has adopted policies to increase the transparency of its operations and has attempted to engage civil society around the world in a dialogue about development policy. In September 1999, it joined the IMF in supporting debt relief and adopting poverty reduction as the primary goal of the two institutions.

Although progress has been made, it is too early to conclude that the World Bank has fundamentally changed for the better. Union Network International is committed to engaging the World Bank on behalf of UNI affiliates affected by Bank projects and to working with the International Confederation of Free Trade Unions to promote labor rights in the Bank’s project lending and development policies.

* The G-7 members are Canada, France, Germany, Italy, Japan, the U.K. and the United States.