WORLD BANK

INTRODUCTION

The World Bank is an international financial institution that provides leveraged loans to developing countries for capital programs.

The World Bank has a stated goal of reducing poverty.

By law, all of its decisions must be guided by a commitment to promote foreign investment, international trade and facilitate capital investment.

The World Bank was formally established on December 27, 1945.

HISTORY

The World Bank is one of the two Bretton Woods Institutions which were created in 1944 to rebuild a war-torn Europe after World War 2.

The International Monetary Fund, a related institution, is the second.

The most powerful countries in attendance were the United States and United Kingdom, which dominated negotiations.

World Bank Briefing

FIVE AGENCIES – ONE GROUP

1. International Bank for Reconstruction and Development (IBRD)

2. International Development Association (IDA)

3. International Finance Corporation (IFC)

4. Multilateral Investment Guarantee Agency (MIGA)

5. International Centre for the Settlement of Investment Disputes (ICSID)

The IBRD focuses on middle income and creditworthy poor countries, while IDA focuses on the poorest countries in the world

MEMBERS

The membership of the Bank 187 members

Total member countries in each institution---   (IBRD)-------- 187

(IDA) ----------170 (IFC) ----------182

(MIGA) --------175

(ICSID) --------144

WORLD BANK COUNTRIES

WHO RUNS THE WORLD BANK?

They run like a cooperative, with their member countries as share holders. The no. of shares a country has is based on the size of the economy.

Largest Share holder: United State (16.41% of votes) Followed by: Japan (7.87% ), Germany (4.49%), The United Kingdom (4.31%) & France (4.31%) .

The rest of the shares are divided among the other member countries

Mission

It is the vision of the World BankGroup to contribute to an inclusive and sustainable globalization – to overcome poverty, enhance growth with care for the environment, andcreate individual opportunity andhope.

Robert B. Zoellick, President

Functions of World Bank1.This is a multilateral institution whose charters call for

weighted voting; both also focus on economic matters in member countries.

2. Is an investment bank that intermediates between investors, who buy the Bank’s bonds, and developing countries, which borrow from the Bank.

3.It initially focused on project lending, concentrating on investment in physical capital in developing countries. In the 1960s and 1970s it began to focus on investing in human capital.

4.The debt crisis of the 1980s prompted it to make market-based adjustment loans.

5.In the 1990s the Bank Tried to Improve its Responsiveness While Stressing Poverty Alleviation and Corruption Reduction

PURPOSE OF WORLD BANK

1. Build capacity by strengthening Governments and educating Government officials.

2. Infrastructure creation by implementation of legal and judicial systems for the encouragement of business .

3. Protection of individual and property rights and the honoring of contracts.

4. Development of Financial Systems by establishing strong systems supporting endeavors from micro-credit to the financing of larger corporate ventures.

5. Combating Corruption

6. Consultancy and Training programs for students ,Government and Non-Governmental Organization(NGO) officers.

Agriculture & Rural Development

Infrastructure

Aid Effectiveness Labor & Social Protection Economic Policy and E

xternal Debt

Poverty

Education Private Sector Energy & Mining Public Sector Environment Science & Technology Financial sector Social Development Health Urban Development

Areas in which world bank is active

Partners

Joint United Nations Programme on HIV/AIDS (UNAIDS)Advocates for global action on the HIV/AIDS epidemic and works with civil society, the business community and the private sector

Global Alliance for Vaccines and Immunization (GAVI)Seeks to protect public health worldwide through the widespread use of vaccines.

Consultative Group for International Agricultural Research (CGIAR)Created and promoted crop improvements in developing countries over the last 30 years through a network of research centers.

Financial Sector Reform and Strengthening Initiative (FIRST)Provides flexible, practical assistance to developing countries to strengthen their financial systems and adopt international financial standards

World Bank support to India

India is one of the oldest members, having joined the institution at its inception in 1944.

The World Bank works in close partnership with the Central and State Governments in India.

The Country Strategy for India for 2009-2012 is aligned with the government's Eleventh Five Year Plan. It focuses on helping the country to fast-track the development of much-needed infrastructure, support the poorest states, and respond to the financial crisis

Some Facts

Total IBRD/IDA Commitments as on June 30, 2010 (FY10): $21.4 billion  (1 July 2009- 30 June 2010) amounted to $9.3 billion.   (by fiscal year, in nearest $ billion) 

  Commitments FY 05 FY06 FY07 FY08 FY09 FY10

New Lending 2.9 1.4 3.7 2.7 2.3 9.3

Total Commitments (Active Projects)

12.8 11.3 14.3 13.8 14.9 21.4

Total No. of Active Projects

64 56 67 60 61 75

PROJECTS

Maharashtra Agricultural Competitiveness Project - September

Bihar Kosi Flood Recovery Project - September

Planning Support Unit for City Development Planning in Madhya Pradesh- August

Portable Solar/Wind Greenhouse to Grow Fodder for Sustainable Dairy Farms- July

Dam Rehabilitation and Improvement Project- July

Mumbai Urban Transport Project-2A June

India National Cyclone Risk Mitigation Project (1)- June

Integrated Coastal Zone Management- June

Karnataka RWSS II Additional Financing- June

West Bengal PRI- June

Andhra Pradesh Water Sector Improvement- June

India - Capacity Building for Industrial Pollution Management- June

BBMB Hydro Power Rehab Project - Carbon Finance- June

India: Scaling Up Sustainable and Responsible Microfinance- June

INDIA - Financing Energy Efficiency at SMEs- May

Bihar Flood Management Information System Phase II-May

Tamil Nadu Health Additional Financing- April

Rajasthan Water Sector Restructuring Project- Additional Financing- April

Tamil Nadu Road Sector Project- March

Lending by Volume in Number of Projects - India

Source- world bank website

Lending by Volume in Millions of US Dollars - India

Source- world bank website

1.Funds generation

2.Loans

3.Trust Funds and Grants

4.Analytic and Advisory Services

5.Capacity Building

Operations

Where the IBRD gets its money

Through the sale of its AAA-rated bonds in the world's financial markets .

The greater proportion of its income comes from lending out its own capital on some interest.

This capital consists of reserves built up over the years and money paid in from the Bank's 187

member country .

1.Funds generation

Where the IDA gets its money

Mostly from governments’ voluntary contributions.

Replenishments- additional contributions which are needed every few years.

Differences between the IBRD and the IDA

IBRD charges an interest rate on loansloans must be repaid within 15-20 years with a 5 year grace period

IDA does not charge an interest rate, only a 0.75% service charge repayment period is 30-45 years with a 10 grace period

2. Loans

Through the IBRD and IDA, world bank offer two basic types of loans and credits: investment operations and development policy operations.

3. Trust Funds and Grants

Donor governments and a broad array of private and public institutions make deposits in Trust funds that are housed at the World Bank. These donor resources are leveraged for a broad range of development initiatives.

Current Lending by Sector in Millions of US Dollars approved in current Fiscal Year - India

World Bank Fiscal Year is from July 1 through June 30

4. Analytic and Advisory Services

While world bank is best known as a financier, but its another role is to provide analysis, advice and information to member countries so they can deliver the lasting economic and social improvements their people need.

This is done in various ways. One is through economic research and data collection on broad issues such as the environment, poverty, trade and globalization .

Another is through country-specific, non-lending activities such as economic and sector work where we evaluate a country's economic prospects by examining its banking systems and financial markets, as well as trade, infrastructure, poverty and social safety net issues.

5. Capacity Building

Another core operation is to increase the capabilities of its partners, the people in developing countries, and their own staff

—to help them acquire the knowledge and skills they need to provide technical assistance, improve government performance and delivery of services, promote economic growth and sustain poverty reduction programs

IMF Vs World Bank

International Monetary Fund World Bank

Promotes exchange relations and stability among its member countries.

Helps underdeveloped countries by providing long-term financing for development projects.

Adds to the currency reserves of its member countries through allocation of special drawing rights (SDRs).

Encourages private enterprises in developing countries through International Finance Corporation (IFC)

While the World Bank provides support to developing countries, the IMF aims to stabilize the international monetary system and monitors the world’s currencies

International Monetary Fund World Bank

Assists all its member countries that are in temporary balance of payments difficulties by providing them short- to medium-term credits.

Provides special finances to poor countries that have a per capita Gross National Product (GNP) less than $865 a year.

Financial resources come from the fixed quota subscriptions of its member countries.

Financial resources are acquired by borrowing on the international bond market.

World Bank VS Commercial Bank

While World bank lends and even manages funds much like a regular bank, the World Bank is different in many important ways.

1. World bank is owned by 187 countries. The financial support and advice the World Bank provides its member countries is designed to help them fight poverty.

2. Unlike commercial banks, the World Bank often lends at little or no interest to countries that are unable to raise money for development anywhere else.

3. Countries that borrow from the World Bank also have a much longer period to repay their loans than commercial banks allow. In some cases, they don’t have to start repaying for ten years.

4. World bank has good credit because if has large, well- managed financial reserves. This means it can borrow money at low interest rates from capital markets all over the world and channel it to developing countries, often at much lower rates of interest than what markets would charge these countries.

Global Challenges

To reduce global poverty

World bank’s work focuses on achievement of the Millennium Development Goals that call for the elimination of poverty and sustained development.

To help developing countries and their people reach the goals by working with the partners to alleviate poverty.

To build the climate for investment, jobs and sustainable growth, so that economies will grow, and by investing in and empowering poor people to participate in development.

5 Strategic Themes : To meet Global Challenges

The Poorest Countries- World bank is helping overcome poverty and spur sustainable growth in the poorest countries, especially in Africa.

Forty-five countries pledged US$25.1 billion in "aid for the world's poorest countries", aid that goes to the World Bank IDA which distributes the gifts to eighty poorer countries.

Post-conflict and Fragile States- World bank is addressing the special challenges of countries that are emerging from conflict or seeking to avoid the breakdown of the state.

.

Middle-income Countries- World bank is building a competitive menu of development solutions for middle-income countries, with customized services as well as finance.

Global Public Goods- World bank is playing a more active role in regional and global issues that cross national borders, including climate change, infectious diseases and trade.

Knowledge and Learning- World bank is a learning organization: that increasingly leverage the best global knowledge to support development

Source: World Bank.

IMPACT• Demand for Bank assistance continues to be high. In FY09, Bank

Group loans, grants, equity investments, and guarantees saw an unprecedented 54% increase over FY08.

• Since the crisis began, the World Bank Group has committed $138 billion to its members and disbursed a record $81 billion—including $21 billion to the world’s 79 poorest countries.

ASSISTANCE BY WORLD BANK TILL NOW$53.1 billion by the International Bank for Reconstruction and Development(IBRD), which provides financing and technical assistance to middle income countries.

$18.3 billion committed by the International Development Association (IDA), which has provided interest-free loans and grants to the world’s 79 poorest countries.

$18 billion by the International Finance Corporation (IFC), the Bank Group’s private sector development arm, which also launched an array of crisis response initiatives, including a $3 billion fund to strengthen banks, a $6 billion Global Trade Liquidity Program, and a $4 billion Infrastructure Crisis Facility.

$1.9 billion in guarantees by the Multilateral Investment Guarantee Agency (MIGA), the Bank Group’s political risk insurance agency. The majority of the guarantees support continued lending by banks in response to the financial crisis.

Source: World Bank.

Source: World Bank.

•  The World Bank is helping streamline urban transport, Jawaharlal Nehru National Urban Renewal Mission (JNNURM)

• Rashtriya Madhyamik Shiksha Abhiyan (RMSA), with an estimated US$ 650 million

At the end of June 2010, the Bank group had 75 active projects with a net commitment of about$21.4 billion

The World Bank has long been criticized by a range of non-governmental organizations and academia.

World Bank faces mounting criticism from a variety of sectors concerning its loan practices to developing nations.

Environmentalists attack the bank for funding ecologically destructive petro- and megaprojects

Social-advocacy organizations say the bank's policies exacerbate poverty rather than alleviate it, poverty reduction being the bank's charter goal.

World Bank rules prevent staff from testifying in public which does not bring transparency in its working.

One of the strongest criticisms of the World Bank has been the way in which it is governed.

While the World Bank represents 187 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 as such, their interests are dominant within the bank.

Criticisms

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World Bank Chief Economist Joseph E. Stiglitz and was fired by the Bank in 1999 for his dissent with its policies. In 2001, he won the Noble Prize in Economics.

In 2002, he wrote The Rebel Within: Joseph Stiglitz and the World Bank.

According to Stiglitz, each nation's economy is individually analyzed, then, the Bank hands every minister the same exact four-step program.

Step 1: Privatization - which Stiglitz said could more accurately be called, 'Briberization' Rather than object to the sell-offs of state industries, national leaders - using the World Bank's demands to silence local critics - happily flogged their electricity and water companies. "You could see their eyes widen" at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billion off the sale price of national assets.

Step 2: Capital Market Liberalization: World Bank’s one-size-fits-all rescue-your-economy planIn theory, capital market deregulation allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money simply flowed out and out. Stiglitz calls this the "Hot Money" cycle. Step 3: Market-Based Pricing, a fancy term for raising prices of food, water and cooking gas. Step 4: Poverty Reduction Strategy: Free Trade – opening up market i.e. providing market access. This is free trade by the rules of the World Trade Organization and World Bank. Europeans and Americans today are kicking down the barriers to sales in Asia, Latin American and Africa, while barricading their own markets against Third World agriculture.

Critics also argue that the so- called free market reform policies—which the Bank advocates in many cases—in practice are often harmful to economic development if implemented badly, too quickly ("shock therapy"), in the wrong sequence, or in very weak, uncompetitive economies. In Masters of Illusion: The World Bank and the Poverty of Nations (1996), Catherine Caufield argued that the assumptions and structure of the World Bank operation in the end harmed southern nations rather than promoting them.  Caufield first criticized the highly homogenized and Western recipes of "development" held by the Bank. To the World Bank, different nations and regions are indistinguishable, and ready to receive the "uniform remedy of development".

She argued that to attain even small portions of success, Western approaches to life are adopted and traditional economic structures and values are abandoned. A second assumption is that poor countries cannot modernize without money and advice from abroad.

World Bank is necessary for developing countries in providing medium- and long-term support , it yearly updates on prospects for developing countries.

Many developing countries have adopted reform programs needed for sustained growth, by cutting inflation, increasing their integration with the global economy, and improving the education and health of their citizens, which should boost growth over the long term. This progress has greatly improved the prospects for growth and for a substantial reduction in poverty.  In addition to this, developing countries have limited mobilization of domestic resources in the form of savings to finance their growing economic needs, so they need loans from the World Bank.  On the other hand, The World Bank is naturally controlled by those countries that have given resources to the bank for use or lending to developing countries. And by looking at the balance sheet it is visible that major resources of the World Bank come from the United State Subscriptions, therefore there is a major influence of United States on the decision-making by World Bank.

Conclusion

• There have been quite a few instances where the influence of United States on decision-making regarding the use of resources has quite visibly shown the political dimension of decisions. For instance, in the past the World Bank’s refusal to build Aswan dam

in Egypt, although the World Bank had approved the project but after the nationalization of Suez canal, the World Bank, on direction from USA withdrew this assistance.

There are many instances of political influences of developed countries on the resources used by the World Bank.

• Reconstruction remains an important focus of their work, given the natural disasters and post conflict rehabilitation needs that affect developing and transition economies. They have, however, broadened their portfolio's focus to include

social sector lending projects, poverty alleviation, and debt relief and good governance. At present World Bank, has sharpened their focus on poverty reduction as the overarching goal of all their work.

• The World Bank also provides an extensive array of advice and facilitates private sector investments in developing countries to promote growth and opportunity.

PRESENTED BY-

ABHISHEK – IB/01

AMIT- IB/02

ANSHUL- IB/04

ASHWINI- IB/05

CHETNA- IB/07

DEEPIKA- IB/08

DEVKANT- IB/09