Answers
What is the World Bank?
The World Bank and its sister institution, the International Monetary Fund, are the two most powerful financial institutions in the world.
The World Bank was created by governments to help finance the reconstruction of Europe after World War II. Since then, the Bank has become the largest public “development” agency in the world, offering grants, loans or guarantee credits to over 100 developing countries. The World Bank’s mission is “to fight poverty and improve the living standards of people in the developing world” and its lending has a direct impact on the lives of millions of people around the world. The World Bank lends, on average, US$15 to $20 billion per year.
The Bank is paradoxically, both a “development” institution, providing grants to poor countries, and a financial institution, making a profit from loans to those same countries every year since 1947. In 2008, World Bank (IBRD, see below) profits were US$1.5 billion.
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What are the agencies of the World Bank and what do they do?
The term “World Bank” refers to the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The World Bank Group refers to the IBRD and IDA, as well as the International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and the International Center for Settlement of Investment Disputes (ICSID).
International Bank for Reconstruction and Development (IBRD)
Higher-income developing countries receive loans from the IBRD. Countries that borrow from the IBRD have more time to repay than if they borrowed from a commercial bank—15 to 20 years with a three-to-five-year grace period before the repayment of principal begins. Developing country governments borrow money for specific Bank-approved programs, (see Structural Adjustment below) specific projects, and to pay back old debt.
In fiscal 2008 IBRD provided loans totaling US$13.5 billion in support of 99 new projects in 34 countries.
International Development Association (IDA)
IDA is the world’s largest source of funding in the form of grants or low/no interest loans to the world’s 82 poorest countries. Forty industrialized countries provide the money for this funding by making contributions every three years. The fund was replenished most recently in 2007 (IDA 15) with US$41.6 billion, an increase of US$9.5 billion over the last replenishment (IDA 14). Of the total replenishment, US$25.1 billion was pledged from donors (including six new donors, in addition to the usual 40: China, Cyprus, Egypt, Estonia, Latvia and Lithuania) and another US$16.5 billion came from the Bank’s resources.
In fiscal 2008 IDA provided US$11.2 billion in financing for 199 new projects in 72 low-income countries.
International Finance Corporation (IFC)
The IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. IFC finances specific projects, mobilizes finance to help private companies raise capital and provides advice and technical assistance to businesses and governments.
In fiscal 2008, the IFC approved 372 projects totaling US$11.4 billion.
Multilateral Investment Guarantee Agency (MIGA)
MIGA promotes private sector foreign direct investment into developing countries through the provision of guarantees. These guarantees are a form of insurance designed to protect investors against risks including the following: expropriation, war and civil disturbance, and breach of contract.
International Centre for Settlement of Investment Disputes (ICSID)
ICSID facilitates the settlement of investment disputes between governments and foreign investors.
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Who owns the World Bank?
Technically, the World Bank is a public institution, owned by the 185 countries - including Canada - who are its “members”. Citizens of member countries, however, feel little ownership of the World Bank. It is a highly secretive and unaccountable institution with limited public access, transparency and accountability, particularly to the millions who are directly influenced by its actions.
Click here for a list of World Bank member countries.
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How is the World Bank governed?
The World Bank is governed by a Board of Governors, consisting of one governor for each of the 185 member states. Each member state appoints a governor and an alternate, who each serve a five-year term. The governors and alternates are typically finance and development ministers. Canada’s current governor is the Minister of Finance, the Honorable Jim Flaherty, and its alternate governor is the president of the Canadian International Development Association (CIDA), Ms. Margaret Biggs. The governors meet once a year at the World Bank’s Annual Meeting to discuss operations and policy. They delegate day-to day operations of the organization to 24 full-time Executive Directors, who are located at the Bank’s headquarters in Washington, DC. The Annual Meeting is usually held in October, and is customarily held in Washington for two consecutive years and in a member country in the third year.
Twenty-four of the Governors also sit on the World Bank’s Development Committee (DC). The membership reflects the composition of the Bank’s Executive Board. The DC meets twice a year in the spring in tandem with the International Monetary and Financial Committee, and in the fall before the Bank-Fund Annual Meetings. At the end of these meetings, the Committee issues a communiqué summarizing discussions and conclusions. The DC’s current chairman is Mr. Agustín Carstens, Mexico's Secretary of Finance and Public Credit.
At the Bank, five of the Executive Directors are appointed by those members with the largest amount of shares in the World Bank (currently the United States, Japan, Germany, France, and the UK), while the other 19 Executive Directors are elected every two years at the Bank’s annual meeting. The Executive Directors make up the Board of Directors and meet twice a week to discuss, among other things, the approval of loans, the administrative budget, and country assistance strategies.
In terms of its staff, the Bank is managed by a President, two Managing Directors, and over 20 Vice Presidents who oversee operational units at the Bank’s headquarters and in its over 100 country offices. The president of the Bank chairs the meetings of the Board of Directors, and is responsible for overall management of the Bank. The Bank’s vice presidents are its principle managers, in charge of regions, networks, sections and functions, while the managing directors oversee regional and thematic operations on a broader basis.
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Who makes decisions at the World Bank?
While all of its members “own” the World Bank, only a few control it. Unlike the United Nations, which is governed on the principle of “one country, one vote”, the World Bank relies on a “one dollar, one vote” system. The Bank is, therefore, effectively controlled by a few donor countries, led by its largest donor, the United States. The US has effective veto power over any decision made by the Bank’s Board of Executive Directors because votes require 85% support and the US holds 16% of the voting share. As a result of this, Bank policy is often seen to reflect US policy.
Most of the Bank’s operational decisions, which affect the lives of millions daily, are made by over 10,000 World Bank staff, most of whom are based at its head office in Washington, DC, USA.
See also FAQs – Canada, the World Bank and International Monetary Fund
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How is the World Bank held to account, or is it?
The World Bank has at least three principal mechanisms which hold it to account: The World Bank Inspection Panel, the Compliance Advisor Ombudsman and the Independent Evaluation Group.
The World Bank Inspection Panel was created in 1993 to increase the accountability of IBRD and IDA projects and provide a forum for local people to voice their concerns with the Bank’s policies and conditions. After receiving a request for inspection, the Panel will independently assess whether the criteria for inspection has been met before proceeding with fact-finding and research. After the independent assessment has taken place, the Panel submits its recommendations to the Executive Directors. The Panel consists of three members of different nationalities from Bank member countries.
In the 15 years since it was created, the Inspection Panel has investigated 52 complaints with both positive and negative outcomes for claimants. Some of the positive outcomes have been to provide compensation to claimants, give greater attention to the environmental effects of Bank-supported projects, and increase the public’s access to information.
Despite these successes, critics have argued that the Panel lacks a substantive mandate and has little ability to grant relief to those it finds adversely affected by Bank policies. Furthermore, the Bank does not sufficiently consider the communities’ recommendations, and therefore does not give the affected people a true voice in the proceedings. Critics have argued that an improved Panel should focus on strengthening the Bank’s public accountability, transparency, and ensure that the Panel process is more accessible to those people adversely affected by Bank projects and programs.
The Office of the Compliance Advisor/Ombudsman (CAO) is the independent accountability mechanism of IFC and MIGA. It was created in 1998 by then World Bank Group President James Wolfensohn. Housed at the IFC, it is nevertheless independent of the rest of the IFC. The purpose of the CAO is “to assist the IFC and MIGA to address complaints of people affected by projects in a manner that is fair, objective and constructive”. Reporting directly to the president of the World Bank Group its three main functions are Compliance, Advisor and Ombudsman. As an ombudsman, it addresses complaints by persons who are affected by projects and attempts to resolve the issues raised using a flexible, problem solving approach. As an advisor, it provides a source of independent advice to the President and the management of IFC and MIGA on emerging issues which the Board’s Executive Directors would like to see addressed. The CAO provides advice both in relation to particular projects and in relation to broader environmental and social policies, guidelines, procedures, resources and systems. The compliance role involves overseeing audits of the IFC’s and MIGA’s social and environmental performance, both overall and in relation to sensitive projects, to ensure compliance with policies, guidelines, procedures, and systems.
The Independent Evaluation Group (IEG) was established in 1973, and was previously known as the Operations Evaluation Department. It reports directly to the Bank’s Board of Executive Directors. IEG assesses project effectiveness, what works, and what does not. More specifically, it looks at how a borrower plans to run and maintain a project, and the long-term impact assessment of development projects. It covers both public and private lending. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank’s work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings. The IEG is comprised of three units which deal with the different aspects of the World Bank Group. The Operations Evaluation Department is responsible for overseeing the Bank’s public sector financing arms, the IBRD and the IDA; the private sector lending arms, the IFC and MIGA, are overseen by Operations Evaluation Group and the Operations Evaluation Unit respectively.
The IEG release an Annual Report on Operations Evaluation (AROE), which assesses the progress, status and prospects for monitoring and evaluation of the development effectiveness of the Bank’s activities. Another report called the Annual Review of Development Effectiveness (ARDE) looks beyond assessing individual projects to the Bank’s broader effectiveness as an institution. Among other things, it looks at the Bank’s role in assisting countries achieve the Millennium Development Goals (MDGs) and the impact of its projects on poverty reduction. In addition to the two annual reports, the IEG produces a number of other publications: about 10 country assistance evaluations a year; reports on specific topic areas such as the Bank’s support for “fragile states”; sector reviews focusing on Bank lending performance in, for example, agriculture or transport; and project reviews of around one in four Bank projects.
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Who is the head of the World Bank?
The current President of the World Bank is former U.S. Deputy Secretary of State, Robert Zoellick. He began his five year term on July 1st 2007. The President of the World Bank is appointed by the World Bank’s Executive Board and is traditionally an America (just as the head of the IMF is traditionally a European).
A few of the recent past Presidents of the World Bank include Paul Wolfowitz, James D Wolfensohn and Robert McNamara.
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How is this person selected?
By tradition, the president of the World Bank is nominated by the largest shareholder in the organization, the United States, and then symbolically elected by the Board of Governors for a five-year renewable term. By a long standing agreement, the president of the World Bank is an American, and the Managing Director of the IMF is typically a European.
Things are starting to change on this front. A Draft Joint Report of the Bank Working Group to Review the Process for Selection of the President and the Fund Working Group to Review the Process for Selection of the Managing Director, presented to the Bank’s Executive Directors in the spring of 2001, laid out five principles for future succession processes. These were as follows:
- A clear criteria for identifying, nominating and selecting qualified candidates should be established by the Executive Directors;
- Executive Directors should be informed in a timely manner regarding candidates, including their credentials and knowledge of the institution;
- There should be a channel for facilitating smooth communication;
- Transparency and accountability are critical, subject to the need to protect the privacy of candidates; and
- Any decision concerning the selection process at the Bank and Fund should take into account any impact on the selection processes at other international financial institutions.
The April 2009 Communiqué of the G20 Heads of State meeting in London also reaffirmed the pledge to urge the World Bank Group to pursue comprehensive reforms of its ownership structure and internal governance, including the process by which the head of the World Bank and IMF are selected.
It remains to be seen what reforms if any will take place as far as the selection process is concerned. Despite the above principles, and previous affirmations of change, in 2008, when both the President of the World Bank and the Managing Director of the IMF were replaced, the US and Europe still asserted their right to nominate the head of the respective institutions. Only time will tell whether the long-standing agreement between Europe and the US will be broken.
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How is the World Bank funded?
IBRD and IDA are funded in different ways. The IBRD is funded primarily by selling AAA bonds on the world’s financial markets, which are typically purchased by private investors in North America, Europe, and Asia. In 2005 the IBRD raised $13 billion on the capital markets and in 2007 it raised $11 billion. IBRD also earns an income through the interest payments it makes from its lending.
IDA’s funding is supported primarily by members of the wealthiest states, who replenish its reserve every three years. The most recent IDA replenishment meeting (IDA 15) reached a conclusion in December 2007 to give a record $41.6 billion to IDA (for July 2008 - June 2011), an increase of 42% from the previous IDA replenishment. A total of 45 member states made contributions to the December 2007 IDA replenishment, the highest number in its history, with the UK contributing over 14% and the US over 12%. While donations from member states make up the majority of the IDA’s funding, IDA also receives some funds from the IBRD and IFC and from borrowers’ repayments of earlier IDA credits.
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How much has Canada contributed to the World Bank?
In 2009, Canada was the seventh largest shareholder at the Bank. Canada’s contributions amount to a total of US$5.5 billion in capital subscriptions to the IBRD, IFC and MIGA and US$6.4 billion in donor contributions to IDA. Canada’s voting power ranges from 2.51 per cent to 3.39 per cent within the Bank’s different institutions. In December 2007, the Government of Canada announced that it would provide $1.3 billion to IDA over the next three years, under the institution’s fifteenth replenishment. In January 2008, Canada made its third and last payment of $318 million, as pledged under the IDA14 agreement. In February 2008, Canada made one-time cash payment of $34 million for IDA15. Finally, in December 2008, Canada issued its first demand note for IDA15 for $384 million. We have pledged a total of CDN$2.5 billion to the Multilateral Debt Relief Initiative (MDRI). By end of 2007, we had committed $46.3 million of this. Canada’s last payment to the Poverty Reduction Growth Facility (PRGF, the grant-lending window at the IMF) was in 2006/2007 and amounted to CDN$7.82 million. From April 1 to December 31, 2008, we contributed $67 million to the Bank’s Multi Donor Trust Funds. Canada’s official development assistance in 2008 amounted to approximately US $4.73 billion, representing 0.32% of Canadian Gross National Income.
Canada’s total contribution
As of June 2008, Canada has subscribed or contributed more than US$11.761 billion to the World Bank. The breakdown by World Bank agency is as follows:
IBRD – US$ 5.404 billion IDA – US$ 7.8348 billion
IFC – US$ 81.342 million MIGA - US$ 56.535 million.
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What kind of loans does the World Bank make?
The World Bank funds two basic types of operations: investment operations and development policy operations. Investment operations fund government economic and social development -related projects in a wide variety of sectors. Development Policy operations (formerly known as adjustment loans) provide “untied, direct budget support to governments for policy and institutional reforms aimed at achieving a set of specific development results”. In FY 2006 and 2007, development policy operations were less than 30% of the Bank’s total financial commitments. Through the IBRD and IDA, the World Bank offers two types of loans and credits related to investment operations and development policy operations. IDA long term loans (credits) while being interest free carry a small service charge of 0.75 percent on funds paid out. IDA commitment fees range from zero to 0.5 percent on undisbursed credit balances. For FY09 commitment fees have been set at 0.0 percent .
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What are “structural adjustment” policies?
“Structural adjustment” is the name given to a set of economic policy changes imposed on developing countries by the World Bank and its sister institution, the IMF. These policy changes are conditions for acquiring new loans or lower interest rates on existing loans from the World Bank and the IMF. The conditions of the structural adjustment programs of the 1980s and 1990s generally addressed short-term macroeconomic imbalances and economic distortions by resolving some of the short-term imbalances in an economy. According to the World Bank, this conditionality was critical for the advancement of first-generation reforms.
For more on structural adjustment, see also FAQs on Conditionality and FAQs on IMF.
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Why do developing countries agree to these harsh economic measures?
They have no choice. Faced with a crushing debt service burden and desperate for either debt relief or new resources to continue to operate, developing country governments have virtually no bargaining power. By making new loans or debt relief conditional on the adoption of SAPs, the World Bank can effectively impose “free market” economic policies on reluctant developing countries.
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What are the impacts of these policies?
SAPs have deepened poverty, undermined food security, public health and self-reliance and led to unsustainable resource exploitation. Since the 1980s, SAPs have helped create a net outflow of wealth from the developing world, which has paid out five times as much capital to the industrialized (donor) countries as it has received from them.
For more on structural adjustment, see also FAQs on Conditionality and FAQs on IMF.
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So how is the Bank doing at “alleviating poverty”?
Poorly. A four-year comprehensive assessment study, called the Structural Adjustment Policy Review Initiative (SAPRIN), completed in 2002 by the World Bank and over a thousand civil society organizations in seven countries concluded that the Bank’s policies and practices (see Structural Adjustment below) had done far more harm than good. Increased inequality, higher unemployment rates, more expensive healthcare and education as well as the deterioration of the environment were the results of the Bank’s blind adherence to the neo-liberal economic model.
Earlier studies by the Bank’s internal evaluations department determined that a third of all Bank loans did not even meet the Bank’s own lending criteria. A “culture of approval” was determined to be the primary cause of the failures. Bank officials felt pressure from donors and their corporations to push through new loans even when presented with overwhelming evidence that the project in question was ill advised.
In 2009, in a major report by its own in-house watchdog (the Independent Evaluation Group – see above), the World Bank gave itself a failing grade on the effectiveness of its spending on health-related programs, especially in Africa, during the period 1997 – 2008. Despite an increase in spending of about $10 billion over the period, to about $17 billion spent globally, the report argues that little progress has been made in improving outcomes in areas such as reducing child and maternal mortality – a key element of the Millennium Development Goals. According to the report, the performance in Africa was “particularly weak”, with only 27 percent of projects considered satisfactory. The Report added that monitoring of health programs remains “weak” and “evaluation is almost non-existent”. The lack of proper monitoring and evaluation had led to “irrelevant objectives, inappropriate project designs, unrealistic targets, and an inability to measure the effectiveness of interventions”. The World Bank agreed with many of the findings and the thrust of the report, calling it a “constructive criticism”. The report will add fuel to the criticism that has emanated from many CSOs, that funding for health programs should be channeled not through the World Bank but rather the Global Fund to Fight AIDS, TB, and Malaria, which in its own self-evaluation reported higher success rates than the Bank. (See IEG Report)
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Who, then, benefits from World Bank projects and policies?
World Bank projects generate over 40,000 contracts annually for goods and consulting services provided by largely by donor countries, including Canada. The United States Treasury Department calculates that for every $1 the United States contributes to international development banks, U.S. corporations receive more than $2 in bank supported contracts. (http://www.corpwatch.org/article.php?id=378)
According to Finance Canada, in the fiscal year 2006-07, World Bank disbursements from country-specific project and program loan accounts to Canadian firms for procurement of goods and services totaled US$40 million.
As a result of this donor self-interest, the Bank tends to finance bigger, more expensive projects using donor contractors and donor technology at the expense of smaller-scale, locally appropriate alternatives. The World Bank has largely focused on transferring technologies from donor to recipient, purchasing a quick technological or managerial fix rather than addressing the underlying causes of poverty.
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Why pressure the World Bank?
People around the world have been opposing the policies and practices of the World Bank for decades. Here are some of the reasons why:
- The World Bank has imposed a neo-liberal economic model of forced privatization, user fees, fiscal austerity, deregulation and liberalization (collectively known as “structural adjustment”). This has undermined job security, food security, worker’s rights, public health, primary education, environmental protection and people’s livelihoods for the past sixty years, with particularly harmful effects on women.
- The World Bank’s adherence to narrowly defined export-led growth model has widened the gap between the rich and poor globally and within developing countries.
- By keeping the governments of less developed countries dependent on new infusions of capital from rich countries, the World Bank has made governments more accountable to Bank managers than to their own people, undermining both democracy and meaningful development.
- The World Bank refuses to cancel 100% of the staggering debt of impoverished countries, despite the illegitimate nature of the debt and the inability of countries’ to both pay debt and provide for the most basic human rights to food, shelter, health care and education.
- World Bank lending for oil wells, gas pipelines, mines, and large dams has displaced millions of people and resulted in human rights abuses, impoverishment of local communities and damaged the environment all over the world. And despite Bank commissioned reports that were highlight critical of the Bank’s own involvement in the dam (World Commission on Dams), mining, oil and gas (Extractive Industries Review) sectors, the Bank continues to provide substantial support to these sectors.
- The World Bank remains inaccessible, unaccountable and undemocratic both to the majority of people in the developing countries where it operates, and to the taxpayers of Canada who contribute to it.
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