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Southern Federal University
Faculty of Economy
World economy Department
WORLD BANK: history,
goals and criticism
Term paper
Rostov-on-Don, 2010
Content
Introduction 3
History 4
Millennium Development Goals 6
Leadership 9
Poverty reduction strategies 10
Criticism 11
Conclusion 14
Words 15
Literature 16
World Bank is a term used to describe an international financial institution that provides leveraged loans to developing countries for capital programs. The World Bank has a stated goal of reducing poverty.
The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), whereas the latter incorporates these two in addition to three more: International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes (ICSID).
John Maynard Keynes represented the United Kingdom at the conference, and Harry Dexter White represented the United States.
The World Bank is one of five institutions created at the Bretton Woods Conference in 1944. The International Monetary Fund, a related institution is the second. Delegates from many countries attended the Bretton Woods Conference. The most powerful countries in attendance were the United States and United Kingdom which dominated negotiations.
Although both are based in Washington, the World Bank is by custom headed by an American, while the IMF is led by a European.
1945–1968
From its conception until 1967 the bank undertook a relatively low level of lending. Fiscal conservatism and careful screening of loan applications was common. Bank staff attempted to balance the priorities of providing loans for reconstruction and development with the need to instill confidence in the bank.
Bank president John McCloy selected France to be the first recipient of World Bank aid; two other applications from Poland and Chile were rejected. The loan was for $987 million, half the amount requested and came with strict conditions. Staff from the World Bank monitored the use of the funds, ensuring that the French government would present a balanced budget and give priority of debt repayment to the World Bank over other governments. The United States State Department told the French government that communist elements within the Cabinet needed to be removed. The French Government complied with this diktat and removed the Communist coalition government. Within hours the loan to France was approved.
Emphasis was shifted to non-European countries and until 1968, loans were earmarked for projects that would enable a borrower country to repay loans (such projects as ports, highway systems, and power plants).
1968–1980
From 1968 to 1980 the bank concentrated on meeting the basic needs of people in the developing world. The size and number of loans to borrowers was greatly increased as loan targets expanded from infrastructure into social services and other sectors.
One consequence of the period of lending was the rapid rise of third world debt. From 1976 to 1980 developing world debt rose at an average annual rate of 20%.
1980–1989
In 1980 A.W. Clausen replaced McNamara after being nominated by US President Jimmy Carter. Clausen replaced a large number of bank staffers from the McNamara era and instituted a new ideological focus in the bank. The replacement of Chief Economist Hollis B. Chenery by Anne Krueger in 1982 marked a notable policy shift at the bank. Krueger was known for her criticism of development funding .
Lending to service third world debt marked the period of 1980–1989. Structural adjustment policies aimed at streamlining the economies of developing nations (at the expense of health and social services) were also a large part of World Bank policy during this period.
1989–Present
From 1989 World Bank policy changed in response to criticism from many groups. Environmental groups and NGOs were incorporated in the lending of the bank in order to mitigate the effects of the past that prompted such harsh criticism. The World Bank headquarters in Washington, D.C.
The World Bank's current focus is on the achievement of the Millennium Development Goals (MDGs), lending primarily to "middle-income countries" at interest rates; while the IDA provides low or no interest loans and grants to low income countries with little or no access to international credit markets. The Bank’s mission is to aid developing countries and their inhabitants to achieve development and the reduction of poverty, including achievement of the MDGs, by helping countries develop an environment for investment, jobs and sustainable growth, thus promoting economic growth through investment and enabling the poor to share the fruits of economic growth.
Key Factors
The World Bank sees the five key factors necessary for economic growth and the creation of an enabling business environment as:
Build capacity: Strengthening governments and educating government officials.
Infrastructure creation: implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honoring of contracts.
Development of Financial Systems: the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures.
Combating corruption: Support for countries' efforts at eradicating corruption.
Research, Consultancy and Training: the World Bank provides platform for research on development issues, consultancy and conduct training programs (web based, on line, tele-/video conferencing ) .
The Bank obtains funding for its operations primarily through the IBRD’s sale of AAA-rated bonds in the world’s financial markets.
Criteria
Many achievements have brought the MDG targets for 2015 within reach in some cases. For the goals to be realized, six criteria must be met: stronger and more inclusive growth in Africa and fragile states, more effort in health and education, integration of the development and environment agendas, more and better aid, movement on trade negotiations, and stronger and more focused support from multilateral institutions like the World Bank.
Eradicate Extreme Poverty and Hunger: From 1990 through 2004, the proportion of people living in extreme poverty fell from almost a third to less than a fifth. Although results vary widely within regions and countries, the trend indicates that the world as a whole can meet the goal of halving the percentage of people living in poverty. Africa’s poverty, however, is expected to rise, and most of the 36 countries where 90% of the world’s undernourished children live are in Africa. Less than a quarter of countries are on track for achieving the goal of halving under-nutrition.
Achieve Universal Primary Education: The number of children in school in developing countries increased from 80% in 1991 to 88% in 2005. Still, about 72 million children of primary school age, 57% of them girls, were not being educated as of 2005.
Promote Gender Equality and Empower Women: The tide is turning slowly for women in the labor market. The World Bank Group Gender Action Plan was created to advance women’s economic empowerment and promote shared growth.
Reduce Child Mortality: There is some improvement in survival rates globally; accelerated improvements are needed most urgently in South Asia and Sub-Saharan Africa. An estimated 10 million-plus children under five died in 2005; most of their deaths were from preventable causes.
Improve Maternal Health: Almost all of the half million women who die during pregnancy or childbirth every year live in Sub-Saharan Africa and Asia. There are numerous causes of maternal death that require a variety of health care interventions to be made widely accessible.
Combat HIV/AIDS, Malaria, and Other Diseases: Annual numbers of new HIV infections and AIDS deaths have fallen, but the number of people living with HIV continues to grow. In the eight worst-hit southern African countries, prevalence is above 15 percent. AIDS remains the leading cause of death in Sub-Saharan Africa (1.6 million deaths in 2007). There are 300 to 500 million cases of malaria each year, leading to more than 1 million deaths. Nearly all the cases and more than 95 percent of the deaths occur in Sub-Saharan Africa.
Ensure Environmental Sustainability: Deforestation remains a critical problem, particularly in regions of biological diversity, which continues to decline. Greenhouse gas emissions are increasing faster than energy technology advancement.
Develop a Global Partnership for Development: Donor countries have renewed their commitment. Donors have to fulfill their pledges to match the current rate of core program development. Emphasis is being placed on the Bank Group’s collaboration with multilateral and local partners to quicken progress toward the MDGs’ realization.
The President of the Bank, currently Robert B. Zoellick, is responsible for chairing the meetings of the Boards of Directors and for overall management of the Bank. Traditionally, the Bank President has always been a US citizen nominated by the United States, the largest shareholder in the bank. The nominee is subject to confirmation by the Board of Governors, to serve for a five-year, renewable term.
The Executive Directors, representing the Bank's member countries, make up the Board of Directors, usually meeting twice a week to oversee activities such as the approval of loans and guarantees, new policies, the administrative budget, country assistance strategies and borrowing and financing decisions.
The Vice Presidents of the Bank are its principal managers, in charge of regions, sectors, networks and functions. There are 24 Vice-Presidents, three Senior Vice Presidents and two Executive Vice Presidents.
Non-members
As of 2010 the only non member states are Andorra, Cuba, Liechtenstein, Monaco, Nauru, North Korea, Tuvalu and the Vatican City. Taiwan is also not a member.
For the poorest developing countries in the world, the bank’s assistance plans are based on poverty reduction strategies; by combining a cross-section of local groups with an extensive analysis of the country’s financial and economic situation the World Bank develops a strategy pertaining uniquely to the country in question. The government then identifies the country’s priorities and targets for the reduction of poverty, and the World Bank aligns its aid efforts correspondingly.
Forty-five countries pledged US$25.1 billion in "aid for the world's poorest countries". Robert B. Zoellick, the president of the World Bank, said, that IDA money "is the core funding that the poorest developing countries rely on".
The World Bank has long been criticized by non-governmental organizations, such as the indigenous rights group Survival International, and academics, including its former Chief Economist Joseph Stiglitz who is equally critical of the International Monetary Fund, the US Treasury Department, US and other developed country trade negotiators. Critics argue that the so-called free market reform policies which the Bank advocates are often harmful to economic development if implemented badly, too quickly ("shock therapy"), in the wrong sequence or in weak, uncompetitive economies.
One of the strongest criticisms of the World Bank has been the way in which it is governed. While the World Bank represents 186 countries, it is run by a small number of economically powerful countries. These countries choose the leadership and senior management of the World Bank, and so their interests dominate the bank.
The World Bank has dual roles that are contradictory: that of a political organization and that of a practical organization. As a political organization, the World Bank must meet the demands of donor and borrowing governments, private capital markets, and other international organizations. As an action-oriented organization, it must be neutral, specializing in development aid, technical assistance, and loans.
Some analysis shows that the World Bank has increased poverty and been detrimental to the environment, public health and cultural diversity. Some critics also claim that the World Bank has consistently pushed a neoliberal agenda, imposing policies on developing countries which have been damaging, destructive and anti-developmental.
It has also been suggested that the World Bank is an instrument for the promotion of US or Western interests in certain regions of the world. Even South American nations have established the Bank of the South in order to reduce US influence in the region. Criticism of the bank, that the President is always a citizen of the United States, nominated by the President of the United States (though subject to the "approval" of the other member countries). There have been accusations that the decision-making structure is undemocratic as the US has a veto on some constitutional decisions with just over 16% of the shares in the bank.
The World Bank has also been criticized for not publishing reports related to the Palestinian economic situation in the West Bank and Gaza.
Structural adjustment
The effect of structural adjustment policies on poor countries has been one of the most significant criticisms of the World Bank. The oil crisis in the late 1970s plunged many countries into economic crises. The World Bank responded with structural adjustment loans which distributed aid to struggling countries while enforcing policy changes in order to reduce inflation and fiscal imbalance. The alleviation of poverty was not a goal of structural adjustment loans, and the circumstances of the poor often worsened, due to a reduction in social spending and an increase in the price of food, as subsidies were lifted.
Business and political interests of main stakeholders
Although controversial and far from proven, there is criticism that World Bank and IMF are used as a means to fulfill business or political needs of the main IMF donors (mostly USA), that were previously historically obtained by more direct activity - war, economic blockade, espionage.
Environmental strategy
The World Bank's ongoing work to develop a strategy on climate change and environmental threats has been criticized. Critics have commented that only 1% of the World Bank's lending goes to the environmental sector.
Environmentalists are urging the Bank to stop worldwide support for the development of coal plants and other large emitters of greenhouse gas and operations that are proven to pollute or damage the environment. For instance, protesters in South Africa and abroad have criticized the 2010 decision of the World Bank's approval for a $3.75 billion loan to build the world’s 4th largest coal-fired power plant in South Africa. The plant will greatly increase the demand for coal mining.
In the conclusion it is possible to say that the World bank is very important institution. The World Bank is one of five institutions created at the Bretton Woods Conference in 1944.
The Bank’s mission is to aid developing countries and their inhabitants to achieve development and the reduction of poverty.
But the World Bank has long been criticized by non-governmental organizations. One of the strongest criticisms of the World Bank has been the way in which it is governed. While the World Bank represents 186 countries, it is run by a small number of economically powerful countries. These countries choose the leadership and senior management of the World Bank, and so their interests dominate the bank.
Leveraged loans - cсуды с внешним финансированием
Multilateral Investment Guarantee Agency - Многостороннее Инвестиционное Агентство Гарантии
International Centre for Settlement of Investment Disputes - Международный Центр Урегулирования Инвестиционных споров