International Bank for Reconstruction and Development – World Bank
The International Bank for Reconstruction and Development (IBRD) commonly referred to as World Bank, is an international financial institution whose purposes include assisting the development of its member nation’s territories, promoting and supplementing private foreign investment and long term balance growth in international trade.
World Bank was established in July 1994 at United Nations monetary and financial conference in Bretton Woods, New Hampshire. It started operating on June 1946 and helped in reconstruction of nations devastated by World War II.
The World Bank has at present, three affiliates –
◊International Development Association (IDA)
◊International Finance Corporate (IFC)
◊Multilateral Investment Guarantee Agency (MIGA)
The members of the international monetary fund are the members of IBRD. It has 188 members 15th August, 2015. If a country resigns its membership, it is required to pay back all loans with interest on due dates.
Organizational structure of World Bank →
The organization of the bank consists of the president, Board of Governors, Board of Executive Directors, the advisory and loan committee and other staff members.
Board of Governors is the supreme policy making body consisting of one governor and alternative governor appointed for 5 years by each member country.
Board of Executive Directors consists of 21 members, 6 of them are appointed by the six largest shareholders namely, USA, UK, West Germany, France, Japan, India, the rest 15 are elected by the remaining countries. The board meets regularly once a month to carry out routine working of the bank.
The President is appointed by the board of executive directors. He acts as the chief Executive of the bank and is responsible for conducting day to day business of the bank.
The Advisory and Loan committees are appointed by the board of Directors. It consists of 7 members.
The Board of Governor and Executive Directors both hold voting power related to the contribution of Government which it represents.
Capital Structure →
The initial authorized capital of the World Bank was $10 billion divided into 1 lakh shares of $ 1 lakh each. On June 30, 1996, the authorized capital was $ 188 billion out of which $ 180.6 billion was issued to member countries in form of shares. The repayment by member countries is done in the following way –
◊ 2% of allotted shares are repaid in gold, US dollar or SDR
◊ 18% of its capital share in its own currency
◊ 80% of the share at the demand of the World Bank
Objectives of the World Bank →
→ To provide long run capital to member countries for economic reconstruction and development.
→ To induce long-term capital investment for assuring Balance of Payment equilibrium and balanced development of international trade.
→ To provide guarantee for loans granted to small and large units of member countries.
→ To ensure the implementation of development projects.
→ Promote capital investment in member countries by – (a) Providing guarantee on private loans (b) Providing loans for productive activities
Functions of the World Bank →
(I) Borrowing Activities –The IBRD is a corporate institution where capital is subscribed by its members. It finances its lending operations from its own medium and long term borrowings in the international capital market and currency swap agreements (CSA).
It also borrows under the Discount – Note Programme – it places bond and notes directly with its member government and offers issued to investors and in public markets.
IBRD has also evolved two new borrowing instruments –
(a) Central Banking facility (CBF) – It is a one year US dollar dominated facility for borrowing from official sources.
(b) Floating Rate Notes (FRNs) – Borrowings in FRNs is meant to help the IRBD to meet the objectives of its funding strategy.
(II) Lending Activities – The bank lends to its member countries in any of the following ways –
(a) By marketing or participating in Loans out of its own fund
(b) By making or participating in direct loans out of funds raised in the market of the member or otherwise borrowed by bank.
(c) By guaranteeing in whole or in part loans made by private investors.
It provides the following facilities to member countries →
- Structural Adjustment Facility (SAF) – It was introduced to borrowing countries in 1985 in order to reduce their Balance of Payment deficits while maintaining their economic growth. SAF funds are used to finance general imports.
- Enhanced Structural Adjustment Facility (ESAF) – It was set up to increase the availability of concessional resources to low-income member countries.
- Special Action Programme (SAP) – It was started in 1983 to strengthen the IRBD’s ability to assist member countries in adjusting to the current economic environment. Its major elements include expansion in lending for high priority operations, accelerated disbursements, expanded advisory services on policies.
(III) Training – It set up the Economic Development Institute(EDI) for training senior officials and help them to improve the management of their economics and to increase the efficiency of their investment programmes.
(IV) Technical and Advisory Assistance – It consists of two broad categories –
(a) Engineering related – Feasibility studies, Engineering design and Construction supervision.
(b) Institution related – Diagnostic policy and Institutional studies, Management support and Training.
(V) Economic and Social Research – It devotes roughly 3% of its budget to economic and social research. It established Research Policy Council(RPC) to provide leadership in the guidance, coordination and evaluation of all bank research. It published World Development Report every year.
(VI) Operations Evaluation – It helps borrowers in the post evaluation of their bank assisted projects. It set up the Operations Evaluation Department (OED) for this purpose.
(VII) Settlement of Investment Disputes – It set up the International Centre of Settlement of Investment Disputes(ICSID) between States and Nationals of other States River Water Dispute and Suez Canal Dispute are some successful examples.
Criticism of World Bank →
→ High interest rate – It charges a very high interest rate on loans, and also an annual commitment charge and a front-end fee. Presently it is 7.6%.
→ Less aid to developing countries – Its lending operations account for only a small proportion of the total net and to developing countries.
→ Faulty lending procedure – It is regarded to be faulty as it lays emphasis on the repaying capacity of the borrowing country before granting loans.
→ Discriminatory – The bank has been criticized to be discriminatory in its purpose-wise and region-wise assistance to its members.
→ Hard conditionality – The introduction of SAF and ESAF has made loan terms tighter. The borrowing country is required to follow an action programme set out in a letter of development policies.
India and the World Bank →
World Bank has made a significant contribution to India’s planned economic development through its direct and indirect assistance.
◊ Founder–member – India is a founder member of the Bretton Woods Twins, i.e. the World Bank and IMF. It has a permanent place on the bank’s executive board.
◊ Loans – India has been the largest recipient of development finance from the World Bank. It granted loans worth Rs. 1992 cores in 1999-2000.
◊ Assistance from IDA – World Bank’s subsidiary institution IDA provides loans from its soft window. It received loan worth Rs. 3464 crore in 1999-2000 from IDA.
◊ Purpose of Loans – Its purpose for providing loans has mainly been for development activities. It financed projects like railway, power aviation, agricultural development etc. It has extended loans to financial institutions like IDBI and ICICI.
◊ Technical Assistance – It sent a number of missions to India to evaluate the working and progress of its five year plan.
◊ Assistance from Aid India Club – The World Bank founded Aid India Club in 1950 to provide massive assistance to finance India’s developmental plans