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World Bank and World Bank Group

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World Bank

  • The World Bank is an international financial organization that funds developing countries to support development.
  • It is affiliated with the United Nations, though it is not accountable to the General Assembly or the Security Council.

World Bank

Establishment

  • The World Bank was founded in 1944 at the UN Monetary and Financial Conference (commonly known as the Bretton Woods Conference), convened to establish a new, post-World War II international economic system.
  • The World Bank officially began operations in June 1946.
  • Its official name was the International Bank for Reconstruction and Development (IBRD). The IBRD later became the World Bank.
  • Headquarters: Washington DC, United States.
  • Member countries: 189 countries (India is a founding member).
  • To become a member of the Bank, a country must first join the International Monetary Fund (IMF).
    • Membership in IDA, IFC, and MIGA are conditional on membership in IBRD.
  • World Bank Goals:
    1. Ending extreme poverty by 2030.
    2. Boosting shared prosperity of the poorest 40% of the population in all countries.
  • The Bank’s first loan was to France. The first loan to a non-European country was to Chile in 1948 for hydroelectric power generation.

World Bank Group

  • Together, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) form the World Bank.
  • IBRD and IDA, along with MIGA, IFC, and ICSID, form the ‘World Bank Group.’
  • India is a member of four of the five constituents of the World Bank Group. India is not a member of the International Centre for Settlement of Investment Disputes (ICSID).
  • India is one of the founder members of IBRD, IDA and IFC.
  • Note: IBRD, IFC and IDA are Specialized Agencies of the UN; ICSID and MIGA are not Specialized Agencies.

International Bank for Reconstruction and Development (IBRD)

  • IBRD is an international financial institution that offers loans to middle-income developing countries.
  • It was established in 1944 under the World Bank, as part of Bretton Woods Twins along with IMF, with the mission of financing the reconstruction of European nations devastated by World War II.
  • Following the reconstruction of Europe, the Bank’s mandate expanded to advancing worldwide economic development and eradicating poverty.
  • Members: 189 member countries.
  • The IBRD provides commercial-grade or concessional financing to sovereign states to fund projects that seek to improve transportation and infrastructure, education, domestic policy, environmental consciousness, energy investments, healthcare, access to food, potable water, and sanitation.

International Development Association (IDA)

  • It was established in 1960 as an international financial institution that offers concessional loans and grants to the world’s poorest developing countries.
  • Members: 174 member countries
  • Interest-free loans are provided for a period of 25-40 years with a grace period of 10 years,
  • Eligibility for IDA support depends on a country’s relative poverty, defined as GNI per capita below an established threshold and updated annually ($1,315 in the fiscal year 2024).

International Finance Cooperation (IFC)

  • Established in 1956 to advance economic development by investing in for-profit and commercial projects for poverty reduction and promoting development.
  • Member Countries: 186 countries
  • It is the largest global development institution focused exclusively on the private sector in developing countries.

Multilateral Investment Guarantee Agency (MIGA)

  • It was established in 1988 to complement public and private sources of investment insurance against non-commercial risks in developing countries. India became a member of MIGA in January 1994.
  • Member Countries: 182 countries
  • It provides non-commercial guarantees (insurance) for cross-border investments in developing countries.
  • MIGA issues guarantees for up to 15 years and, occasionally, 20 years. The minimum length of a guarantee is three years.

International Centre for Settlement of Investment Disputes (ICSID)

  • Established in 1966 by the Convention on the Settlement of Investment Disputes.
  • Member Countries: 158 countries
  • It is the world’s leading institution devoted to international investment dispute settlement. It is a forum for investor-state dispute settlement.

Governance

  • The World Bank is run by a president and executive directors, and various vice presidents.
  • The Executive Directors are responsible for conducting the day-to-day business of the World Bank. There are 25 Executive Directors and 25 Alternate Executive Directors representing the 189 member countries.
  • The President of the World Bank Group serves as Chairman of the Board of Executive Directors and is selected by the Executive Directors.
  • Throughout the World Bank’s history, the bank’s President has been an American Citizen.

Board of Governors

  • These member countries, or shareholders, are represented by a Board of Governors, who are the ultimate policymakers at the World Bank.
  • The Boards of Governors consist of one Governor and one Alternate Governor appointed by each member country.
  • The office is usually held by the country’s Minister of Finance, Governor of its Central Bank, or a senior official of similar rank.
  • They meet once a year at the Annual Meetings of the Boards of Governors.
  • Tenure: The Governors and Alternates serve for a term of five years and can be reappointed.

Role of the Board of Governors

  1. Admit and suspend members;
  2. Increase or decrease the authorised capital stock;
  3. Determine the distribution of the net income of the Bank;
  4. Decide appeals from interpretations of the Articles of Agreement by the Executive Directors;
  5. Make formal, comprehensive arrangements to cooperate with other international organisations;
  6. Suspend the operations of the Bank permanently;
  7. Increase the number of elected Executive Directors; and
  8. Approve amendments to the Articles of Agreement.

Voting Power in World Bank

  • Voting power is based on a country’s capital subscription, which is based on its economic resources.
  • Thus, the wealthier and more developed countries constitute the bank’s major shareholders and exercise greater power and influence.
  • The United States is the largest single shareholder, with 16.41% of the votes, followed by Japan (7.87%), Germany (4.49%), the United Kingdom (4.31%), and France (4.31%). The rest of the shares are divided among the other member countries.

Finances of World Bank

  • The bank obtains its funds from the capital subscriptions of member countries, bond flotations on the world’s capital markets, and net earnings accrued from interest payments on IBRD and IFC loans.

Functions of the World Bank

  • Financing Development Projects: The World Bank Group funds projects across various sectors, including infrastructure, education, health, agriculture, and environmental protection.
  • Advisory Services: Provides expert advice and capacity-building support to help countries implement effective policies and strategies for development.
  • Data and Research: Generates and disseminates data and research on global economic trends, development challenges, and best practices to inform policy decisions.
  • Capacity Building: Offers training and capacity-building initiatives to help countries improve governance, institutional frameworks, and development outcomes.
  • Promoting Private Sector Development: The World Bank Group mobilizes private capital and expertise through the IFC to foster economic growth in developing countries.

Achievements of the World Bank

  • The Bank mediated three international disputes: the nationalization of Iran’s oil industry, the development of the Indus River Water system, and the financing for the Aswan High Dam on the Nile.
  • In the 1990s, the Bank assisted former Soviet nations in redirecting their economies after the dissolution of the Union of Soviet Socialist Republics.
  • In 1991, the Global Environment Facility (GEF) was established to further the focus on safeguarding the environment.

World Bank Reforms

  • Power imbalances in governance structures. The World Bank’s governance structure is heavily influenced by Western countries, particularly the USA, which holds significant voting power. neglecting the current global economic realities where emerging economies like China and India play a crucial role.
    • Decision-making reforms through the introduction of double-majority voting, where an agreement would require both shareholder and member-state majorities, would give developing countries a larger role in these processes.
  • The economic policy conditions, i.e., the ‘Structural Adjustment Programme’ (SAP), often ‘recommended’ as part of loans, projects, technical assistance, or financial surveillance, undermine borrower nations’ sovereignty and erode their ownership of national development strategies.
  • World Bank-funded projects have continually been found to be in direct, serious violation of international human rights standards. Major recurring issues include mass evictions and the forced displacement of peoples and communities for major infrastructure and agricultural projects.

Reports by World Bank

  1. World Development Report
  2. Remittances & Migration Report
  3. Global Economic Prospects
  4. Poverty and Shared Prosperity Report
  5. Global Financial Development Report
  6. Logistics Performance Index
  7. World Governance Indicators
  8. Global Monitoring Report

India and the World Bank

  • In 1949, India took its first World Bank loan for the development of the Indian Railways.
  • The World Bank and India have been working together to meet the developmental goals of growth, stability and social development.
  • The World Bank has provided assistance to India in multiple fields, such as agriculture, infrastructure, health, education, rural development, and supporting the development of oil and gas extraction facilities.

Projects funded by the World Bank in India

  • Pradhan Mantri Gram Sadak Yojana
  • National Ganga River Basin Project
  • Dam Rehabilitation and Improvement Project
  • Eastern Dedicated Freight Corridor
  • Bihar Kosi Flood Recovery Project
  • Grid-Connected Rooftop Solar Program Project
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