The International Bank for Reconstruction and Development (IBRD) or the World Bank was established on December 27, 1945 following international ratification of the Bretton Woods Agreement of 1944 , which emerged from the United Nations Monetary and Financial Conference (July 1-22,1944).to assist in bringing about a smooth transition from a war time to peace time economy. It is the sister institution of IMF. Since its inception in 1944, the World Bank has expanded from a single institution to an associated group of coordinated development institutions. The Bank’s mission evolved from a facilitator of post-war reconstruction and development to its present day mandate of worldwide poverty alleviation, social sector funding and comprehensive development framework. The term ‘World Bank’ now refers to World Bank Group which includes
- International Bank for Reconstruction and Development (IBRD) established in 1945 for providing debt financing on the basis of sovereign guarantees.
- International Financial Corporation (IFC) established in 1956 for providing various forms of financing without sovereign guarantees primarily to the private sector.
- International Development Association (IDA) established in 1960 for providing concessional financing (interest free loans, grants etc.) usually with sovereign guarantees.
- International Centre for Settlement of Investment Disputes (ICSID) established in 1966 which works with various governments of various countries to reduce investment risks.
- Multilateral Investment Guarantee Agency (MIGA) established in 1988 for providing insurance against certain types of risks including political risks primarily to the private sector.
The IBRD also called the World Bank performs the following functions:
- To assist in reconstruction and development of territories of its members by facilitating the investment of capital for productive purpose and to encourage the development of productive facilities and resources in less development countries.
- To promote private foreign investment by means of guarantees on participation in loans and other investment made by private investors.
- To promote the long range balanced growth of international trade and the maintenance of equilibrium in the balance of payments of member countries by encouraging international investments for the development of their productive resources.
- To arrange the loans made or guaranteed by it in relation to international loans through other channels so that more useful and urgent small and large projects are dealt with first.
World Bank is like a cooperative where its 185 member countries are its shareholders. The shareholders are represented by a Board of Governors, which is the ultimate policy making body of the World Bank. Generally governors are member countries ministers of finance or ministers of development who will meet once in a year at the Annual Meeting of the Board of Governors of the World Bank Group and IMF
The members of International Monetary Fund are the members of the IBRD. If a country resigns its memberships, it is required to pay back all loans with interest on due dates. If the Bank incurs a financial loss in the years in which a member resigns, it is required to pay its share of the loss on demand.
Like the IMF, the IBRD has a three-tier structure with a President, Executive Directors and Board of Governors. The President of the World Bank Group (IBRD, IDA and IFC) is elected by the Bank’s Executive Directors whose number is 21. Of these, 5 are appointed by the five largest shareholders of the World Bank. They are the US, UK, Germany, France and Japan. The remaining 16 are elected by the Board of Governors. There are also Alternate Directors. The first five belong to the same permanent member countries to which the Executive Directors belong. But the remaining Alternate Directors are elected from among the group of countries who cast their votes to choose the 16 Executive Directors belonging to their regions.
The President of the World Bank presides over the meetings of the Board of Executive Directors regularly once a mouth. The Executive Directors decide about policy within the framework of the Articles of Agreement. They consider and decide on the loan and credit proposal made by the President. They also present to the Broad of Governors at its annual meetings audited accounts, an administrative budget, and Annual Report on the operations and policies of the Bank. The President has a staff of more than 6000 persons who carry on the working of the World Bank. He is assisted by a number of Senior Vice-Presidents and Directors of the various departments and regions. The Board of Governors is the supreme body. Every member country appoints one Governor and an Alternate Governor for a period of five years. The voting power of each Governor is related to the financial contribution of its government.
The World Bank operates under the leadership and direction of the President, Vice Presidents and other senior management staffs who will look after the functions like Fund generation, Loans, Grants and other analytical and advisory services.
Fund Generation: IBRD lending to developing countries is primarily financed by selling AAA rated bonds in the world financial markets. It earns a small margin on this lending where major proportion of its income comes from lending of its own capital which consists of, reserves built over the years and money paid to the Bank from its 185 member countries. International Development Association (IDA) provides interest free loans and grant assistance to poorest countries which is replenished every three years by 40 donor countries. Additional funds are generated through repayments of loan principle on 35 to 40 years interest free loans which are then available for relending. IDA accounts for nearly 40% of total lending of the World Bank.
Loans: Through IBRD and IDA, the bank offers two basic types of loans and credits- Investment Loans and Development Policy Loans. Investment Loans are made to countries for goods, works and services in support of economic and social development projects in a broad range of economic and social sectors.
Development Policy Loans on the other hand provide quick disbursing financing to support countries policy and institutional reforms. IDA provides long term interest free credits at a small service charge of o.5 %to 0.75%.
Grants: Grants are designed to facilitate development projects by encouraging innovation and co- operation between organizations and local stakeholders participation in projects.; which are either funded directly or managed through partnerships used mainly to relieve debt burden of heavily indebted poor countries, improve sanitation and water supplies, support vaccination and immunization programs to reduce the occurrence of communicable diseases ,combat HIV/AIDS pandemic, support civil society organizations and create initiatives to cut the emission of green house gases.
Analytical and Advisory Services: Through economic research on board issues such as the environment, poverty ,infrastructure, trade, social safety, and globalization the Bank evaluates a country’s economic prospects and assists in the following activities:
- Public poverty assessments
- Public Expenditure reviews
- Country economic memoranda
- Social and structural reviews
- Sector reports
- Capital building