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What is the World Bank?
The World Bank is no ordinary bank. You cannot deposit or withdraw money at the World Bank. And you don�t have checking or savings accounts either. That�s because the World Bank is actually an international development organization that is owned by its more than 180 member countries�both rich and poor. Its role is to reduce poverty by lending money to the governments of its poorer members�often called "developing" countries�and to those countries whose economies are in transition. World Bank loans help to increase economic productivity and to improve the standard of living of people in these countries. Development means helping people to become more productive and to live healthier, fuller lives. As its people become more productive, a country is better able to trade with other countries to get more of the goods and services it needs to continue improving conditions. But development also means ensuring that countries plan their growth so that future generations will have the chance to live better lives as well. The World Bank was established in 1944 and its official name was the International Bank for Reconstruction and Development (IBRD). When it first began operations in 1946, it had 38 members. That number increased sharply in the 1950s and 1960s, when many colonies became independent nations and joined the Bank. Today, most of the countries in the world are members. As it has grown, the World Bank has created new organizations within itself that specialize in different activities. All these organizations together are called the World Bank Group. The World Bank Group consists of the International Bank for Reconstruction and Development (IBRD, the original "World Bank," which lends to middle-income countries), the International Development Association (IDA, which lends to low-income countries), the International Finance Corporation (IFC, which lends to the private sector), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). The World Bank is like a giant cooperative with its members as shareholders. The number of shares a country has is based roughly on its relative economic strength. The United States is the largest single shareholder, followed by Japan, Germany, the United Kingdom, and France. The rest of the shares are divided among the other member countries. The highest governing body of the bank is the Board of Governors, which meets once a year and consists of one governor from each member country. Day-to-day decisions, including all loans, are made the Executive Directors, a small group of experts who are appointed by the member countries. The Bank employs more than 9,000 people, including economists, educators, environmental scientists, financial analysts, anthropologists, engineers, and many others. About 160 nationalities are represented. Why are developing countries and countries with transitional economies interested in borrowing from the World Bank? First of all, the Bank lends money to middle-income countries at interest rates that are lower than the rates on loans from commercial banks. In addition, the Bank lends money to the poorest developing countries, those that often cannot find other sources of loans, at no interest. Countries that borrow from the Bank also have a much longer period to repay their loans than commercial banks allow. And they don�t have to start repaying for several years. But how does the World Bank get the money to make these loans? Basically, the Bank borrows the money it lends. It has good credit because it has large, well-managed financial reserves. This means it can borrow money at low interest rates from capital markets all over the world. It can then lend money to developing countries on very favorable terms. The Bank�s financial reserves come from several sources�from earnings on its investments, from fees paid in by member countries, from contributions made by members, generally the richer ones, and from borrowing countries themselves when they pay back their loans. The World Bank lends only a portion of the money needed for a project. The borrowing country must get the rest from other sources or use its own funds. Eventually, since the country mush pay back its loans, it ends up paying for most, if not all, of the project itself. World Bank loans are for specific development projects as well as for technical assistance and policy guidance. For example, World Bank loans help countries supply people with safe drinking water; build schools and train teachers; increase agricultural productivity; manage forests and other natural resources; build and maintain roads, railways, and ports; reduce air pollution and other environmental problems; extend telecommunications networks; generate and distribute energy; expand health care, especially for women and children; and modernize. The World Bank also serves as a catalyst to stimulate investment and lending by others. In addition, the Bank lends money to hire technical experts and to help countries to reshape their economies to make them more efficient and productive. In an average year the world Bank lends roughly 20 billion dollars to the governments of about 80 developing countries to support more than 225 projects.
Much has been accomplished with the help of these resources. Many developing countries are producing more goods and services and trading more with other countries. Millions of their people are getting better jobs and earning more money. They are eating more and better food, and building better houses, with electricity and running water. They are getting more of a chance to go to school and to stay in school longer. People are living longer, healthier lives, with the hope of even better lives for their children. Many tough problems still remain to be solved. Population is growing rapidly; more than a billion people still live in absolute poverty (that is, they live on $1 or less a day). Many countries are not earning enough to buy everything they need and their debt burdens persist. In rich and poor countries alike, environmental problems continue to multiply and are becoming increasingly serious. The full potential of women as partners in development has yet to be tapped. And overall, the economic gap between rich and poor may still be widening. As you can see, development can be successful, but it is not easy, and there are no simple answers to many of the questions it raises. It takes a lot of work. Most of this work has to be done by the people in the countries themselves, but development organizations, such as the World Bank, have critical roles to play as well. The challenges of development concern all of us, and how we choose to meet these challenges will shape our lives and the lives of people everywhere for years to come.
The project cycle begins when a developing country identifies a need, designs a project, and asks the Bank for a loan. Experts from the borrowing country and the World Bank study the plan carefully. The Bank appraises the project, asking questions such as: Will the project help the country�s economy? Will it benefit the poorest people and increase economic opportunities for women? What impact would it have on the environment both now and in the future? Can other funders be found? And will the country be able to maintain the project once funding ends? Negotiations take place on how best to implement the scheme. Once an agreement is reached, and the loans are approved, work can begin. The Bank carefully monitors progress and pays out the loan bit by bit. Once finished, a project is evaluated to learn how successful it has been and to see how much it has helped�and will continue to help�the country�s economy and its people. This project cycle is often complex and can take many years to complete. Not all projects funded by the World Bank are judged successful, but the large majority of them are. And lessons learned from one project are applied to others to help them succeed.
The World Bank is only one of a number of organizations all over the world that help developing countries, either with loans or grants. For example, there are regional development banks for different areas of the world�Africa, Asia, the Caribbean, Europe, and Latin America. Some commercial banks may also lend money to developing countries. In recent years, the debt owed to many of these banks has become a heavy financial burden. The International Monetary Fund is a cooperative institution with more than 180 member countries. It works to maintain an orderly system of receipts and payments between nations, all with their different currencies, exchange rates, and government policies. Most richer nations have government agencies that assist developing countries with loans and grants. In recent years, the Scandinavian countries, the Netherlands, and France have given, proportionally, the largest amounts of aid. The United Nations and its agencies�such as UNICEF, the World Health Organization, the United Nations Development Programme, and United Nations Educational, Scientific and Cultural Organization (UNESCO)�all assist developing countries. And many private nonprofit organizations�as well as many religious foundations�fund development projects around the world. The World Bank cooperates with many of these institutions, and some of its projects are financed jointly with them. |
