The World Bank
The World Bank
The World Bank
The World Bank is one of the most powerful global financial institutions to offer leveraged
loans. Despite its numerous aims and missions, the chief target of the World Bank is poverty
reduction. Embraced by two main institutions like the International Development Association
and the International Bank for Reconstruction and Development, the World Bank is today an
internationally vital funding institution.
The World Bank was initially an inception of Bretton Woods Conference (The United Nations
Monetary and Financial Conference) in July 1944, New Hampshire. It was the first from five
institutions shaped, as a need of regulation of the international monetary and financial order
subsequent to World War II. The conference gathered 730 delegates from each 44 joined
countries, where the most potent and dominated countries subject to discussion were the United
States and United Kingdom, represented respectfully by Harry Dexter White and John Maynard
Keynes. Although initiated together, and both based in Washington, D.C., the World Bank and
the International Monetary Fund differ from each other in the leading process. The World Bank
has an American leader, whereas the International Monetary Fund is led by a European.
From 1945 to its notion until 1967, the World Bank was following a low level of lending, due to
the fact that the loan transmission was regular and ordinary. Considering the specifics, the bank
made its efforts to design a steadiness level of equilibrium to renovate the loans on the purpose
of achieving the trust in the Bank’s activity. France was chosen from the Bank president to be the
first beneficiary country of the World Bank aid, while Chile and Poland’s requests were rejected.
1
Study of the world bank SYMMS ( SEM IV )
The first amount of the loan was USD 250 million and it enclosed rigorous restrains. As argued
at Mason, E. (1973), after a range of observations from the World Bank regarding the fund
utilization, the French government offered a very stable budged on debt repayment, although it
was pointed out the need to eliminate the communism components inside the Cabinet.
Later on, the Marshall Plan in 1947 changed the flow of the World Bank aid. Many other
European countries obtained financial support, and shortly after, the interest emerged in non-
European countries until 1968, in which the loans were intended to those projects that could help
the borrower country to repay the loans mainly at infrastructure and ports construction. It was
again Mason, E. (1973) criticism on the early World Bank role as ineffective to fulfill the
mission,
From 1968 to 1980 the chief operation of the World Bank was to accomplish the fundamental
needs of the developing countries. Moreover, the number of loans to borrowers was amplified,
especially in infrastructure or social services sector. The former changes were due to the selected
American business executive Robert McNamara allotted by the presidency, whose intentions
were in generating an innovate system that would connect the borrower country with the Bank,
to facilitate the loan process. He immediately modified the Bank’s policies into vital trials such
as the investment in the health system, agriculture enhancement; building schools etc.3 With the
purpose of financing additional loans, the new president in assistance with the Bank treasurer
Eugene Rotberg, managed to enhance the capital available to the Bank only by searching new
external sources of capital such as those banks which have been major sources of bank funding.
Unfortunately, the effect of the period of the alleviation of the poverty took a debt rise of
developing countries with the annual rate of 20% from 1976 to 1980. According to Goldman, M.
(2005) on its very first decades the World Bank was explicitly predestined to decline, confined
also by the political pressure of the United States.
2
Study of the world bank SYMMS ( SEM IV )
SUMMURY
The World Bank is an international development organization owned by 187 countries. Its role is
to reduce poverty by lending money to the governments of its poorer members to improve their
economies and to improve the standard of living of their people. The Bank is also one of the
world's largest research centers in development. It has specialized departments that use this
knowledge to advise countries in areas like health, education, nutrition, finance, justice, law and
the environment. Another part of the Bank, the World Bank Institute, offers training to
government and other officials in the world through local research and teaching institutions.
The World Bank was established in 1944 to help rebuild Europe and Japan after World War II.
Its official name was the International Bank for Reconstruction and Development (IBRD). When
it first began operations in 1946, it had 38 members. Today, most of the countries in the world
are member
Without a place like the World Bank from which to borrow money, the world’s poorest countries
would have few, if any, ways to finance much-needed development projects. The projects are
essential to helping people become educated, live healthy lives, get jobs, and contribute as active
citizens.
The World Bank has created new organizations within itself that specialize in different activities.
All these organizations together are called the World Bank Group. It consists of:
3
Study of the world bank SYMMS ( SEM IV )
• International Centre for Settlement of Investment Disputes (ICSID) helps private investors and
foreign countries work out differences when they don't agree.
The Bank is run like a giant cooperative, where its members are shareholders and is operated for
the benefit of those using its services. The number of shares a country has is based roughly on
the size of its economy. The United States is the largest single shareholder, followed by Japan,
Germany, the United Kingdom, and France. The rest of the shares are divided among the other
member countries.
At the Annual Meetings, all of the Bank's and International Monetary Fund ‘s (IMF) governors
decide how best to address global development issues and decide what the world should focus on
in the upcoming year (and near future) to help reduce poverty in the world.
Since the governors meet only once a year, they give specific duties to their Executive Directors,
who work on-site at the Bank. Every member government is represented by an Executive
Director. The five largest shareholders (France, Germany, Japan, the United Kingdom and the
United States) appoint an executive director each, while other member countries are represented
by 19 Executive Directors.
The Bank's 24 Executive Directors oversee the Bank's business, including approving loans and
guarantees, new policies, the administrative budget, country assistance strategies, and borrowing
and financial decisions.
The Bank lends money to middle-income countries at interest rates lower than the rates on loans
from commercial banks. In addition, the Bank lends money at no interest to the poorest
developing countries, those that often cannot find other sources of loans. Countries that borrow
from the Bank also have a much longer period to repay their loans than commercial ba…
4
Study of the world bank SYMMS ( SEM IV )
The World Bank is an international development organization owned by 187 countries. Its role is
to reduce poverty by lending money to the governments of its poorer members to improve their
economies and to improve the standard of living of their people. The World Bank is an
international organization dedicated to providing financing, advice, and research to developing
nations to aid their economic advancement. The bank predominantly acts as an organization that
attempts to fight poverty by offering developmental assistance to middle- and low-income
countries. As of 2022, the World Bank identified 17 goals that it aims to achieve by 2030. The
top two are stated in their mission statement. The first is to end extreme poverty by decreasing
the number of people living on less than $1.90 a day to below 3% of the world population. The
second is to increase overall prosperity by increasing income growth in the bottom 40% of
every country in the world.
The World Bank is an international organization that provides financing, advice, and
research to developing nations to help advance their economies.
The World Bank and International Monetary Fund (IMF)—founded simultaneously
under the Bretton Woods Agreement—both seek to serve international governments.
The World Bank has expanded to become known as the World Bank Group with five
cooperative organizations, sometimes known as the World Banks.
The World Bank Group offers a multitude of proprietary financial assistance, products,
and solutions for international governments, as well as a range of research-based thought
leadership for the global economy at large.
5
Study of the world bank SYMMS ( SEM IV )
The World Bank's Human Capital Project seeks to help nations invest in and develop
their human capital to produce a better society and economy.
6
Study of the world bank SYMMS ( SEM IV )
The IBRD was founded in anticipation of the end of World War II, during the Bretton Woods
Conference of 1944, a gathering of the 44 Allied Nations of the Second World War meant to
establish the post-war global financial order. Along with establishing a new global monetary
policy regime, the Bretton Woods Conference was also where the International Monetary Fund
and the IBRD were formed. The first loan ever issued by the International Bank Of
7
Study of the world bank SYMMS ( SEM IV )
Reconstruction and Development was to the government of France, to help finance the
reconstruction of critical infrastructure. Following the reconstruction of Europe, the IBRD
shifted its focus to promoting economic development in other parts of the world.
The World Bank’s International Development Association (IDA) is one of the largest and most
effective platforms for fighting extreme poverty in the world’s lowest income countries. IDA
works in 74 countries in Africa, East Asia & Pacific, South Asia, Europe & Central Asia, Latin
America & Caribbean, and Middle East & North Africa.IDA aims to reduce poverty by
providing financing and policy advice for programs that boost economic growth, build resilience,
and improve the lives of poor people around the world. More than half of active IDA countries
already receive all, or half, of their IDA resources on grant terms, which carry no repayments at
all. Grants are targeted to low-income countries at higher risk of debt distress. Over the past 62
years, IDA has provided about $458 billion for investments in 114 countries. IDA also has a
strong track record in supporting countries through multiple crises.
IDA partners and representatives from borrower countries come together every three years to
replenish IDA funds and review IDA’s policies. The replenishment consists of contributions
from IDA donors, the World Bank, and financing raised from the capital markets. Since its
founding in 1960, IDA has had 20 replenishment cycles. The current 20th cycle, known as
IDA20, was replenished in December 2021. It took place one year earlier than scheduled to meet
the unprecedented need brought about by the COVID-19 pandemic in developing countries. The
$93 billion IDA20 package was made possible by donor contributions from 52 high- and middle-
income countries totaling $23.5 billion, with additional financing raised in the capital markets,
repayments, and the World Bank’s own contributions.
8
Study of the world bank SYMMS ( SEM IV )
enterprise in nations that might be lacking the necessary infrastructure or liquidity for businesses
to secure financing.
The IFC was established in 1956 as a member of the World Bank Group, focused on investing in
economic development. It claims to be the largest global development institution focused on the
private sector in developing countries. The IFC says it also seeks to ensure that private
enterprises in developing nations have access to markets and financing. The IFC's most recent
stated goals include the development of sustainable agriculture, expanding small businesses'
access to microfinance, supporting infrastructure improvements, as well as promoting climate,
health, and education policies. The IFC is governed by its 184 member countries and is
headquartered in Washington, D.C.IFC Global Financing To raise money, the IFC issues bonds
in markets around the world. As of 2021, the IFC has issued $10.553 billion worth across 178
bonds in 20 currencies.
In fiscal year 2021, the IFC invested $31.5 billion in long-term and short-term finance, including
$10.8 billion mobilized from other investors.
The IFC provided $145 million in financing to help one of the world’s largest dairy producers,
FrieslandCampina, acquire a controlling stake of 51% of Engro Foods, Pakistan’s leading dairy
processor. Although Pakistan is the fourth-largest milk-producing country in the world, demand
has consistently outpaced supply due to poor infrastructure and an outdated supply chain. Small
subsistence farms account for nearly 80% of the industry’s output. FrieslandCampina has
promised to share its experience and best practices with the smaller farmers who supply Engro
Foods, along with the majority of the dairy processors in Pakistan. The stated goal is to help
these small farmers increase productivity and reduce waste. The IFC said it expects that 200,000
farmers and 270,000 distributors will benefit from FrieslandCampina's acquisition of Engro
Foods. In addition, the investment is projected to create 1,000 new jobs in the dairy supply chain.
Criticism of the IFC The IFC has faced criticism as its size and influence around the globe have
9
Study of the world bank SYMMS ( SEM IV )
grown. It says one of its primary goals is to reduce poverty through economic development, but
critics say it has begun to act more like a private investment bank with a focus on corporate
profit, sometimes with disregard for the environmental and social impacts of its projects.
The agency was created to complement both public and private investment insurance sources
against non-commercial risks in developing countries. Its multilateral character and sponsorship
by advanced and developing nations were seen as bolstering confidence among people going
across borders to invest their money. In 1991, the number of member states of MIGA topped
100. Eight years later, guarantees issued by the agency reached a total of $1.3 billion, topping the
$1 billion dollar mark for the first time ever. The agency also provided guarantees worth $1.2
billion in 2009 to support the economies in Europe and Central Asia following the global
financial crisis.
ICSID was established in 1966 by the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the ICSID Convention). The ICSID Convention is
a multilateral treaty formulated by the Executive Directors of the World Bank to further the
Bank’s objective of promoting international investment. ICSID is an independent, depoliticized
and effective dispute-settlement institution. Its availability to investors and States helps to
promote international investment by providing confidence in the dispute resolution process. It is
10
Study of the world bank SYMMS ( SEM IV )
also available for state-state disputes under investment treaties and free trade agreements, and as
an administrative registry. ICSID provides for settlement of disputes by conciliation, arbitration
or fact-finding. The ICSID process is designed to take account of the special characteristics of
international investment disputes and the parties involved, maintaining a careful balance between
the interests of investors and host States. Each case is considered by an independent Conciliation
Commission or Arbitral Tribunal, after hearing evidence and legal arguments from the parties. A
dedicated ICSID case team is assigned to each case and provides expert assistance throughout
the process. More than 600 such cases have been administered by ICSID to date. ICSID also
promotes greater awareness of international law on foreign investment and the ICSID process. It
has an extensive program of publications, including the leading ICSID Review-Foreign
Investment Law Journal and it regularly publishes information about its activities and cases.
ICSID offers rules designed specifically for the resolution of international investment disputes
between investors and States. The two main instruments are the ICSID Convention and the
ICSID Additional Facility, which provide the procedural framework for arbitration, conciliation
and fact-finding proceedings. This framework is supplemented by detailed Regulations and
Rules. In addition to administering proceedings under the ICSID rules, the Centre handles
arbitration cases under other rules, such as the UNCITRAL Arbitration Rules, and ad hoc
investor-State and State-State cases. The Centre’s services are also available for mediation of
investment disputes and other alternative dispute resolution mechanisms. While ICSID provides
a wide range of services during the course of a proceeding, it does not itself make procedural
rulings or decide the dispute. Independent conciliation commissions and arbitral tribunals
constituted in each case are vested with the power to rule on procedural issues and resolve the
parties’ dispute.
Let us look at the history of the world bank for a better understanding:
YEAR 1944-1945
The Second World War destroyed the economies of many nations. Thus, in July 1944, right
before the war ended, 44 nations came together to discuss global issues at the UN Monetary and
11
Study of the world bank SYMMS ( SEM IV )
Financial Conference. Later, it became known as the “Bretton Woods Conference.” As a result,
institutions were established, namely the Monetary and Financial Conference and IBRD. Yet, the
World Bank ceased to exist. Out of the 28 delegates decided to sign the Articles of Agreement.
However, the entire operations of the World Bank began on July 25, 1946.
YEAR 1946-1967
The World Bank provided France’s first loan and other European nations. However, because of
competition, they focused on the Asian and African continents. Thus, in 1948, Chile was the first
non-European recipient to receive funding of $13.5 million. International Development
Association (IDA) and the International Finance Corporation (IFC) came into power during this
period.
During this phase, the bank saw many (40%) countries suffering from poverty. Therefore, they
decided to eradicate the cause of poverty from its root. Also, they focused their aim on climatic,
environmental, education, and social issues. As a result, the lending rate increased by twelvefold
times.
YEAR 1982-1995
During the 1980s, the world was facing many wars and crises. Major ones included the oil crisis
and the global recession of the 1980s in the United States. Thus, in 1990, MIGA was formed to
provide insurance against the political risk arising in these countries. Also, the rise of the Global
Environment Facility in 1991 overlooked the environmental factors in the nations.
YEAR 1995-2022
By the end of 20the century, IBRD, IDA, IFC, MIGA, and other institutions collectively started
working under the name “World Bank.” Besides providing loans, they also reduced corruption,
poverty, gender discrimination, and others.
12
Study of the world bank SYMMS ( SEM IV )
Let us look at the functions of the World bank that member nations must follow:
ADVANTAGE :
1. Financial support: It helps developing countries achieve their goals by providing them with
the financial and technical support they need. It gives out loans to underdeveloped countries to
fight their poverty issues.
3. Equality: The bank’s main objective is to bridge the gap between the rich and the poor and
ensure there is the distribution of resources to enable the poor countries to sustain their economy.
4. Overcome poverty: The bank has helped many poor people within the nation by providing
them with basic needs like health care facilities and food to reduce malnutrition.
5. Social development projects: IBRD participates in various projects like offering medical
care, social development projects, infrastructure, and access to education among other projects.
6. Effective firms: It ensures firms are no longer subsidized and they either become successful
or fail. This increases the effectiveness of the firms.
13
Study of the world bank SYMMS ( SEM IV )
7. Encourage trade: World Bank leads to the reduction of trade restrictions and this results in
more trade between nations. Not only does it boost trade but also increases income and
customers will be able to benefit from a variety of products.
8. Favorable policies: World Bank policies focus more on structural programs making them
favorable in the long-term.
10. Climate change: IBRD projects are aimed at reducing climate change caused by human
activities and other factors like solar radiation.
11. Shares its experience and knowledge with the developing countries. Developing countries
face many challenges and it’s only prudent that the World Bank advocates for shared knowledge
and research. This happens through conferences and forums that are hosted or sponsored by the
World Bank. Issues concerning development are discussed in detail. There is also the World
Bank live that offers one on one discussions with participants from every corner of the world.
12. Supports agriculture. One of the major projects of the World Bank is that of agricultural
development. We all know that World Bank aims at eradicating poverty and one of the ways to
do so is through agricultural development. This is also the perfect way to bring about food
security especially in developing countries.
13. Helps in reducing unemployment. In recent times, the issue of unemployment has become
rampant. The World Bank has put forward an agenda and strategies that can help provide job
opportunities, especially to the youth. This is through education, support for the growth of the
private sector, and boosting infrastructure. All these act as ways of connecting the population to
various job opportunities.
14
Study of the world bank SYMMS ( SEM IV )
also provide much-needed training and counseling so that every upcoming entrepreneur is able to
succeed.
15. Support for innovation. Innovation is a critical thing in development. The World Bank
works to support innovative initiatives worldwide. This may be in agriculture, climate, or
technology. They believe in not only economic growth but also the support for innovation that is
meant to make the world a better place.
16. Stands for gender equality. Until now, there are some countries where women do not
receive the same privileges as men especially when it comes to development and employment.
Women empowerment is one of their objectives and specifically in terms of economic growth or
labor force. In some parts of the world, there are laws and regulations that discriminate against
women. For instance, in some countries, women cannot manage their own assets. This makes it
difficult for a woman to put up her own business. This is just among the many issues regarding
inequality that the World Bank is advocating for change.
17. Help countries recover from war and terrorism. War can bring down any country to its
knees and leave its people reeling in extreme poverty. The World Bank recognizes this problem
and hence tends to come to the rescue of countries that are emerging from war. This is to help
them recover and gradually grow their economy.
18. Improved health care. The health sector in many developing countries suffers as a result of
insufficient funds. Many poor families don’t even have access to proper health care, more so
women and children who are the most vulnerable. The World Bank focuses on proper nutrition,
maternal health care, and infant survival.
19. Helps countries fight corruption. Corruption is a problem that countries all over the world
are facing. Corruption tends to undermine the development of a country and hence the World
Bank is putting in efforts to combat this global menace.
20. Offers global partnerships. This is important for the growth of developing countries. Some
nations are struggling with the debt burden. Through global partnerships, the World Bank offers
them debt relief so that they are not faced with an economic crisis.
DISADVANTAGE
15
Study of the world bank SYMMS ( SEM IV )
1. Power rests with the rich: The rich countries or economically powerful countries have more
power over the poor countries resulting in unfairness in the assistance offered.
2. World Bank Policies: The bank has been criticized for its failing policies and being too slow
to assist. It is mostly used as a tool for free-market nations.
3. Puts failure burden on the poor: If it fails, it puts the burden of the fall on the poor since it
will not be able to provide some basic needs to the poor.
4. Undermine state: There are controversies that the World Bank will undermine the state as the
main provider of essential goods and services like education and health care facilities.
5. Promote inflation: Due to its free-market reforms, it can promote the world’s inflation and
also result in a state-dominated international trade.
6. Free market: The economic model of the free market is being pushed to third-world
countries. The bank is also criticized for ignoring equity.
7. Funding: The bank receives a lot of criticism because an American always heads it and the
US provides the majority of the funding.
8. Uncompetitive economy: The free market advocated by the bank may result in harmful
economic development if not properly implemented.
9. Unfair conditions: There are unfair conditions attached to the support provided. There are
unfair conditions attached to World Bank loans.
10. Sovereign immunity: World Bank needs sovereign immunity from the 184 countries in a
relationship with. Sovereign immunity waives the holders of the legal liability of any action.
11. Biased in decision making. Many of the decisions made by the World Bank have been
deemed biased and also inconsistent. Only the major shareholders take part in decision making
and this is seen as a dictatorship.
12. Inability to learn from past mistakes. The World Bank has been heavily criticized for not
being able to learn from past mistakes.
16
Study of the world bank SYMMS ( SEM IV )
13. Acting with impunity for the harms they have caused. Some people end up getting
affected in one way or the other when the World Bank launches projects in their country. For
instance, some may lose their land, homes, and means of livelihood. However, those that get
negatively affected often don’t get compensated as they should.
14. The development projects at times cause a lot of harm. As much as World Bank funds
various projects, these projects more often than not are a violation of human rights. This is
through forced eviction and displacement of communities from their lands, causing food
insecurity in local areas and even forced child labor for their funded projects.
15. Lack of evidence for the positive impact of their projects. The bank maintains that its
main goal is to eliminate poverty and foster economic growth. This however is highly disputed
considering the increase in poverty levels, especially in Africa.
16. Refusal to measure harmful impacts. The bank refuses to acknowledge all the negative
impacts that its policies and projects have on the people in the countries under their support.
17. The bank does not safeguard forests. In some instances, the bank has failed to protect the
forests and has overstepped the boundaries of the local people.
18. Being in support of moral hazard. Some World Bank nations, most notably Italy and
Greece have been criticized for going after very huge budgets that they are unable to sustain. It’s
thought that they do this because they believe the World Bank will extend a helping hand.
19. Unsustainable growth-based model. The way they approach development and poverty
eradication tends to harness and contribute to further environmental and climate crises.
20. Investments in fossil fuels. Fossil fuels are known to have a negative impact on the
environment and the climate at large. In spite of all this, the World Bank has continued investing
more in fossil fuels rather than in renewable energy.
17
Study of the world bank SYMMS ( SEM IV )
The World Bank missions are firmly conducted from the Millennium Development Goals
(MDGs), a set of eight international goals where each United Nations country member has
acceded to accomplish. The main mission of the Bank relies on the universal poverty reduction,
which at the meantime is the world’s most imperative increasing concern.
Some of the chief issues in the center of attention are devoted to the completeness of lending
activity, such as supporting the middle-income countries at certain interest rates that will
replicate low gains than its own borrowings from capital markets. Furthermore, no interest loans
and donations to the low income nations with minor or no admission to global credit markets are
supplied by the International Development Association.
The World Bank primary missions consist on giving support to the developing countries and
assist on poverty reduction, sustain the economic growth upward to a promising investment
background, build up jobs, all in the course of a relentless financial supply.
Considered to be its major five features for the economic development, the World Bank
comprise the governmental amplification and their certified executive’s education, achievement
of legal systems for the businesses, protection of private assets rights, founding of powerful
18
Study of the world bank SYMMS ( SEM IV )
supporting systems from micro credit to bigger business enterprises, helping countries to fight
corruption, and finally, offers researches and programs on consulting services, training
procedures which will be especially useful to non-government organizations, academies and
even governments itself. The entire above mentioned goals are determinant for an expanded
economical development (Goldman, M., (2005)).
The Bank’s funding is acquired first and foremost from the AAA-rated bonds sold throughout
the IBRD in international markets. It is this institution itself that creates earnings from its
contribution actions, whereas IDA earnings are collected throughout the donor nations which
refill the Bank’s finances each three years and from loan refunding.
In order to fulfill the missions of the MDG objectives by the year 2015, it is required to firstly
complete six standards as follows: an intense growth for the developing countries, African
countries and especially the tenuous ones, development of other sectors like education and
health, incorporation of environment and growth programs, higher and healthier aid, advanced
trade conventions, and finally a more powerful alerted support from other international
institutions such as the World Bank is.
From year 1990 to 2004 there was a decline in the percentage of people living in extreme
poverty. The prime impact of the Bank is extreme poverty and hunger. Thus, the World Bank
utilizes its responsiveness to develop the life standards for millions of poor people and low
income countries by increasing the level of its funding to USD 106 billion in 2009-2010 periods.
According to statistics, the frequency of children school attendance in developing countries
increased from 80% in 1991 to 88% in 2005. In addition, 57% of 72 million children of primary
school age were not being educated, most of them females. (Gilbert, C. and D. Vines, (2000)).
Seeing it as a problem for several countries, the World Bank also contributes in promoting the
gender equality, by stimulating female’s force in the labor market, as long as 60% of them are
unpaid family employees. Another significant scope is child mortality declining. According to
statistics, an evaluation of 10 million children died in 2005 under the age of five, where the
majority of deaths came from unavoidable reasons.
Still, the radical circumstances made it very hard to face the harsh problems in the region; given
that more than half million women died during pregnancy or childbirth. Such causes called for
19
Study of the world bank SYMMS ( SEM IV )
deep health care involvement from the World Bank and its activities which also made it broadly
available.7
Another struggle of the World Bank regards the fight against AIDS, Malaria and other
contagious diseases particularly in Africa, where the mortality due to HIV/AIDS have reached
1.6 million in 2007. Mortality as a result of malaria causes 300 to 500 million deaths each year,
where almost 95 percent of deaths take place in Sub-Saharan Africa.
Other important activities of the World Bank comprise the biological protection and
deforestation mainly in unfavorable regions; standards for air pollution and emission of the gas
that reach the critical standards. The Bank also cooperates with various international associates
and local ones in order to rapidly fulfill the MDGs targets.
The United States is eventually the prevalent shareholder of the Bank, and the Board represents
the member nations and is formed by the Executive Directors who meet twice a week to
supervise the administrative issues, innovative policies, loaning decisions and mission strategies
for specific countries. The Board of Directors is formed from 25 Executive Directors including
the President while the Bank itself comprises 24 Vice Presidents, three Senior Vice Presidents
and , two Executive Vice Presidents.
In order to have a good occurrence of its competences, the World Bank evaluates all its policies
with the purpose of supporting the poor by stressing out the financial options that would be
complementary to the improvement concerns. The strategies of the World Bank are established
on three pillars: resources; reforms; efforts and the results. Reforms usually tend to develop the
activity of the projects and strategies from their conception till the information distribution,
whether it is being reachable, and finally the governmental accomplishment. It also organizes
various campaigns to undertake the certainty that the financial activities are strictly affirmed into
the country members, such as capital improvements.
Stiglitz J. (2001) argued that ‘a range of policies and institutional changes are needed in order to
enhance participation. This includes better education, investments in communication
infrastructure, rule of law and full employment policy’.9
20
Study of the world bank SYMMS ( SEM IV )
Its main products consist of two main groups: lending products and Analytic and Advisory
Activities (AAA). The first one contains programmatic loans, adjustment loans and investment
credits; whereas the second includes donor coordination, non-lending technical assistance and
fee-based advisory services. On the other hand, the World Bank Group integrates five narrowly
connected entities that work jointly toward poverty reduction: the World Bank (IBRD and IDA),
the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency
(MIGA), and the International Centre for Settlement of Investment Disputes (ICSID).
Each of the biggest shareholder countries like the United States, United Kingdom, Japan,
Germany, and France assign an executive director.
To facilitate all the operation procedures, in 1993 the World Bank assembled a board that would
adhere the international strategies and guidelines. After surveys and examination supported from
the Bank, the board covers the advantage for giving the opportunity to express the people’s
opinions regarding the projects and missions.
The World Bank is a colossal institution which incorporates approximately 10.000 development
professionals from roughly each country in the world. Only in Washington, D.C., it contains
more than 100 nation offices, together with economists, financial advisers, analysts, etc10
whether, in developing countries are around 3000 employees working in national offices.
Fundamentally required to build a connection between poor and rich nations, their devotion is
essential on generating the World Bank guiding principles. At Winters, J.A. and Pincus, J.R.
(2002) it is analyzed the need of reforming the Bank’s policies, and the necessity to improve its
strategies so that their implementation could not create negative implications especially in
developing countries. New policy changes were needed, as the Bank was facing difficulties and
controversies in several nations. As analyzed at Bhargava, V., (2006), at the attempt of offering
debt relief, they couldn’t soothe critics of alleviating poverty.
In order to sustain the proper poverty reduction, the World Bank strives to daily innovate its
support towards the low-interest and no-interest credits and donations from its own institutions
(IBRD and IDA), especially in the low-income nations. The bigger the finances, the more
loaning will be obtainable for re-investing to complete the Bank’s priorities. Therefore, the
World Bank is very cautious at keeping a financial discipline in order to keep the AAA-rated
21
Study of the world bank SYMMS ( SEM IV )
bonds and continuing its activity. Instead, contributes and the financial sustain of all the
shareholders is essentially needed, so as to display straightly the capital they obtain.
To fulfill the IBRD obligations it is compulsory to appraise that in extra ordinary case, the Bank
possesses the 178 billion dollars in what is known as the callable capital, even though the call on
such store was never required before. On the other hand, IDA remains the biggest source of
funding which grants interest free loans to the developing countries, restocking 40 donor
countries every three years.
At the end of the fiscal year, the World Bank is automatically in a surplus, a part of which is
targeted to the IDA missions and strategies to be accomplished. Whereas the rest serves as a debt
in needs of poor countries or in case of prerequisite conditions.
The evolution of the World Bank over the past forty years implemented a positive impact
especially in developing countries (raised by 20 percent) and heartened its activity in successful
projects. The World Bank activity is highly concentrated in the growth promotion and
development of the developing countries mainly by helping new work places, revenue boosting
and providing all the financial assistance.
In spite of a variety of campaigns and promotions, nowadays the role of the World Bank is being
misinterpreted because of the criticisms it is facing. In the globalization era there is a massive
flow of goods, services, technology, capital and people; therefore the mission of the World Bank
becomes more dense and complicated.
POVERTY REDUCTION
The World Bank has to fulfill the Millennium Development Goals particularly in reducing the
poverty. The process was accompanied by reforms of the economic policies by the developing
countries whose major intention is reaching a stable access to food and water. The global
economic crisis displayed a variety of improvement towards the stabilization of hunger, gender
parity and school system progress. According to the World Bank data, 64 million people live on
less than USD 1.25 per day (Table 1) showing a clear life improvement in these countries.
22
Study of the world bank SYMMS ( SEM IV )
As forecasted, in 2015, the estimated number of poor people because of the economical crisis
will be 53 millions, living with less than USD 1.25 per day (Lin. 2008).
Despite this, these economies should focus on empowering the sustainable economic growth and
alternation with the tough social policies. Another big challenge lies in key sectors such as health
care system and infrastructure in affording education for the poor. The World Bank role in
reducing the poverty is of an essential support for the local governments which have to protect
the gains and continuously aim the MDGs level. Poverty enhancement is also related to
unemployment and poorer remittances. They both collaborate on international demand layoffs.
In order to subordinate poverty, the key strategy is trade. The World Bank is having a major role
in facing the challenges at conflict-affected countries by developing a widespread agenda. As
indicated in the figure below, there is no Millennium Development Goal achieved by FCC11.
Finding their selves striving for MDGs accomplishment, they remain 40-60% faraway distant
from middle-income countries and low income countries.
Furthermore, as a financial institution the World Bank assists in consulting for new economic
opportunities aiming mainly the middle-income and low income countries reaching a double
lending of USD 106 billion in 2009-2010.
Studying the role of aid, Collier (2007) argues that due to poor assimilative extents, aid turns out
to be less proficient in countries where aid reaches 16 percent of GDP, keeping them in a holding
pattern. Furthermore he brings up the conclusion that donors should support fragile countries.
23
Study of the world bank SYMMS ( SEM IV )
The global crisis highlighted difficulties in achieving the MDGs, in collecting the necessary
sources and in moving forward with the policies of economic growth. The World Bank MDGs
goals have to be reached by year 2015 including the major efforts in reducing the poverty
worldwide. The global economic crisis has distinct the poverty reduction as a core mission.
Realizing the sustainable growth of the poorest countries represents a challenge for it. The World
Bank on its future reforms evaluated an increase of global output being higher by almost USD 4
trillion bringing to new work places. The global growth is strictly connected with the growth in
the developing countries. Their economic donation includes the rise of the import demand on the
other hand the fast growing economic developments boost the investments bringing high returns.
accurate and effective strategy for reducing poverty should enclose a particular plan to achieve
the scopes that have to be fulfilled. The focus could include macro policies and structural
policies which are needed to sustain the proper development in which the poor countries emerge.
It is very rigid to promote the growth without progress in governance, like comprising the
financial management or the public sector. The plan should restrain unambiguous policies and
rich programs fittingly to the level of the costing.
The first focus regards the macroeconomic policy relevance together with the regulatory policy.
Growth and development is beneficial for the poor countries, implementing for instance the
exchange rate policy, inflation or to reinforce the social safety. As studied by Buira A. (2003),
even though for the majority of the poor countries, policies like inflation cannot be implemented,
simply because it will make it unfavorable for the poor and the adverse monetary policy impacts.
A poverty reduction strategy should contain the following crucial elements:
Macroeconomic and structural policies that look after the development in which poor
countries take part
Governance enhancement policies together with the public sector financial management
Real costing and fitting levels of endowment for the foremost programs
Suitable division policies and strategies
24
Study of the world bank SYMMS ( SEM IV )
The aspect of labor market policy is motivated and determined. The strategy focuses problems
like labor standards, minimum salaries, taxes and other labor market rules. The second aspect
regards the governance policies progress, confirming the intensified consciousness about the
Right qualification of institutions. The countries are supposed to deal with concerns such as the
accountability and transparency of government expenditures and the non-functionality of civil
service. On the other hand, a corrupted government creates a weak authority for the poor
countries to access in the government services, simply because they cannot have the capability to
afford the services. The third aspect is the real costing and fitting levels of endowment for the
foremost programs. It includes a precise strategy for increasing new government revenues
external assistance. Additionally there is an obligation for rational budget information.
The forth aspect requires special awareness. It characterizes education, health, environment as
well as social protection. At Mishkin S. F. (2007) as long as the recommendations from country
to country differ, the policy, the implementation, the general organization clear up what makes
poor households poor and use policies to moderate the resulting poverty. Given this, countries
should express their strategies suitably while minding their own budget constraints, as long as
reforms will not be put into operation if public expenditures cannot be afforded. Moreover, it is
crucial an analysis of costs in a range of regional or gender distribution and distributional
impacts of proposed policies. Poverty reduction strategies aim to make aid more valuable in
reducing poverty. The World Bank acknowledged the duty to support and offer its assistance in
sustaining the poverty reduction strategies. Some of the main poverty reduction strategies
include global price trends, inequality, labor market and job trends. Global price trends indicate
that international food prices improved by 8% from December 2011.
25
Study of the world bank SYMMS ( SEM IV )
After their peak in February 2011, they considerably decreased 6% from the previous level.
Additionally the World Bank Food Price Index improved by 8% from December 2011 to March
2012, after four months of successive price falling. A relevant factor that induced the price boost
in Europe was the financial crisis of 2008 occurrence.
The figure above illustrates global food price index for food, grains, fats and oils, and other
foods, are still performing high levels against those of February 2011 ranks. Since January 2012,
they systematically increased each month. Performing a raise of 13% quarterly, Fats and oils
achieved the most augmented values, rather than 6% in the other foods and 4% in the overall
price of grains. In spite of all the monthly and yearly lapses, the volatility of the prices for food
remains noteworthy with respect to the continuous emphasizes.
In situations of severe food insecurity which could have been predictable or even cyclical the
responses can be different. The contrary happens in the opposite situations of unpredicted shocks
in which the responses do not vary much.
In order to deal with this hollow, there is an implementation of a special support which serves to
define and monitor at global levels and not only the crisis of food price. The main characteristics
of this framework stand in the global food prices concentration without considering core factors
such as distribution and food access.
As illustrated in figure 2, still, in March 2012 the global food price index is lower than the
financial crisis level, even though there is a call for cautiousness in the range of present high
food prices. Yet, in many parts of the world the domestic prices are increasing at exceeding
levels. This is being better resembled from the detrended global price index.
Inequality as a second strategy focuses on a very intense problem that the economies are striving
nowadays. It is more than obvious that those economies which obtain advanced standards of
26
Study of the world bank SYMMS ( SEM IV )
living and experience a high development stimulate inequality. Differences across nations guide
towards political disruption and social disorders. Thus, the World Bank policies tend to create an
equivalent prospect for the nations, as the best way to develop its general wellbeing.
The World Bank aid on the Balkans has been invested to support the regional development. Its
major activity is based on the poverty reduction, reaching the sustainable economic growth and
reaching the macroeconomic stability. Throughout this overview it can be distinguished that the
region is rather heterogeneous in both population and income level. Within devoted discussions
together with the European Commission, the Western Balkan nations are big importance issue,
especially on their road to EU integration.
The prime purposes of the strategies in the Western Balkans include reduction of poverty,
ascertain stability and development, increasing wealth and ascertain harmony. As also pointed
out in Svejnar, J. (2002), in order to grant a solid basis for supporting growth, it is considered
necessary a more profound and steady realization of domestic reform plans, solid institutional
authority, and a more improved infrastructure. In comparison to the other international
organizations, the World Bank offers a long term support at a universal outlook. The World
Bank country assistance is a designed work of World Bank Group help to each particular
country. As a start, it identifies the economic problems of the country, estimates government
policies and the precedent Bank support, analyzes main concern region for future Bank action,
suggests specific products for Bank help, and finally it offers an outline for control performance
of Bank and receiver. The World Bank country assistance is a product of a discussion practice
with associate nations, civil society councils and collaborator organizations such as European
Commission, EBRD, and EIB.
In this region people live on half income level of five central European nations. From the social
perspective, there are minorities and population groups who could contrast more the ethnic
conflicts and the poverty could generate tensions leading to a fragmentation of the society. The
Kosovo crisis has influenced in the regional economies negatively by lowering the total output
by two percent for countries like Albania, Bosnia and Herzegovina, FYROM, Croatia and
Romania. This brought to an increase of the current account deficit for the region.
27
Study of the world bank SYMMS ( SEM IV )
Characterized of small economies, their growth and progress is greatly conditional upon
international organizations as well as European markets trade. Integration with foreign structures
will imply a stronger public sector, a lower corruption level and stability impact. Countries like
Albania, Bosnia and Herzegovina, Macedonia, and Serbia live at the half income compared to
the Central European countries (nearly about USD 2,200 per capita). Through the transitory
process these economies managed to recover the income levels at only 75 percent, therefore
there is a high inequality and declining living standards. There are four key factors that have
affected in this: the first aspect includes the industrial structural imbalances in this region due to
the weak role of the institutions. Secondly, being a war and ethnic conflict region, the economic
activity was restricted, and the institutional strength of the civil societies very limited. The
macroeconomic climate was not favorable to the business investments standing as the third
factor.
The major strategy for reducing the poverty in the South Eastern region requires specific policies
and governmental support. The past ten years represent a phase of transition for these countries
characterized by ethnic conflicts and income inequalities. Political obstacles and the low
institutional governance have prevented these countries to reach the full functioning of the
market. Therefore, the rising conflicts worsened their overall performance and declined the
living standards experiencing an inferior economic performance.
After the end of the Kosovo conflict and Dayton Agreement, the Balkans display social issues
regarding their separation from the homes and properties. Bosnia and Herzegovina citizens that
were displaced reached more than the third of it, and the Kosovo Albanians experience the same
social and economic uncertainties. The political and economic costs of the region are generally
highlighted by the living standards decline and a social perspective which has to be improved.
Accelerating the steadfast economic reforms could support these economies to come out of the
transitory phase.
The South Eastern countries commitments on an intra-regional cooperation could support the
further developments of the strategies, increasing the major chances of their effectiveness. The
reduction of poverty would come with the integration with the European Union, since the
production and import export opportunities would be higher bringing to the goal fulfillment.
28
Study of the world bank SYMMS ( SEM IV )
Specific economic reforms have to be undertaken reassuring the cooperation with the European
structures. Moreover, building a new economic face the region countries were provided with the
certain financial and experience consulting in managing technically the reforms. The
independence of the private sector remains a priority for an eventual World Bank focus.
Investing in strengthening this sector aims business climate improvements therefore generation
of employment.
The challenges mentioned above lead towards the aid motivations. The first is that the World
Bank should play the role of the stability factor for the region. Improvements in infrastructure
through investments will help to achieve the prosperity and sustain the economic growth as well
as the environmental safeguard. The combining of the local efforts with the regional
development policies of the World Bank are the key strategic approach for assuring stability
throughout the Balkan zone.
The World Bank role is essential in promoting the initiatives to overpass the fractures of
transitory phase. The free flow of trade, people and ideas would bring the stability to a very good
macroeconomic level. Furthermore, the economic growth objectives fulfillment reduces the
poverty level and the political tensions. The World Bank has a clear vision on reducing the
imbalances for the Balkans through main investments in restructuring the infrastructure,
healthcare system and high improvements of the administrative governance.
The poverty reduction initiatives of the World Bank involve the economic reforms that are being
promoted and monitored by this authority alternating the indispensable role of the local
government. Strengthening of the institutional role would be a parallel initiative in competing
with the global community and a part of every investing approach.
The World Bank’s vision aims the social developments, open opportunities for a stable
prosperous region in which the governments implement policies on the law strengthening and
lowering the corruption level. The institutions and the state execution of power have to include a
greater dedication of the civil society and financial management.
Lastly, there was a clear need for the enhancing investment policies alternated with overall
political reforms undertaken by the local governments. The World Bank’s core mission was
29
Study of the world bank SYMMS ( SEM IV )
based on the crucial processes such as the liberalization of trade, the restructuring of the financial
system and the privatization of enterprises.
Determinants of Aid
The role of institutions is very crucial towards poverty mitigation, especially to create the
guarantee that public services are distributed to all the categories of population, as well as the
poor citizens. Good governance covers a group of solid institutions that construct political and
economic environment. For this, domestic institutions should efficiently apply regional guiding
principles. Regional policies are required to be set up throughout domestic institutions.
Despite of economic basis, political and historical reasons are very important to understand
impacts of aid in each country. Alesina A. (2000), managed to find a theoretical and empirical
approach of the implication that foreign aid flows are determined mainly by the political and
strategic variables in the host country, rather than the economic demand and policy indicators.
Bräutigam D. (2004) on her study of aid and governance relationship in Sub-Africa, found out
that aid can reinforce domestic institutions, liberate governments from compelling revenue
restrictions, and pay more salary to civil retainers especially in poor countries. On the other hand,
the study was criticized from a different approach of Moss T. and Pettersson G. (2005) regarding
the impending negative impacts of aid dependence on government institutions, simply because
political institutions might be harmfully influenced. Authors came into the conclusion that those
countries which obtain extensive proportion of the foreign aid, in fact tend to have a less
developed popular legitimacy and institutional effectiveness, because they do not generate
enough revenues for the national community. They brought a closer view of the fact that the low
incomes nations which are embattled for significant enhancement in aid, traditionally receive
unprecedented flows. Western Balkan countries have notable drawbacks in public sector
services, institution rules and infrastructure for private sector improvement. Dominant obstacles
to growth and progress particularly challenging across the area, comprise taxes and regulation as
well as company licensing.
30
Study of the world bank SYMMS ( SEM IV )
ongoing wide participation of the state into the productive sector is improper and averts public
sector capital towards a bad intrusion. An operative financial sector plays a vital role in the
economy, by means of savings and investment.
There is a considerable distinction of expenditures structure across the region and the South-East
Europe counties. Every nation has organized the structure of spending differently. The share of
wages is higher in Moldova, Bulgaria, Macedonia as well as Kosovo, but on the other hand the
investment share resides in high percentages for the same countries.
The financial sector of the region stands relatively untrained and not improved in the process of
distribution of services to the financial intermediation towards the economy. Such malfunction
implies backwardness on statistical indicators, especially compared to the European standards.
Loaning to private sector is limited in most of the countries of the region, and banking system is
characterized by competitiveness deficits as well as bad credit holdings from banks. Weak public
sector institutions represent a barrier for private sector improvements. As a consequence,
corruption and a bad quality service may rise. Reforms are based in three chief bases like budget
reform, public sector and civil service improvements, and legal and judicial system development.
Moreover, South Eastern Europe nations have difficulties in budget implementation because of
transparency.
Those governments that substitute the local resources with the foreign aid could not generate
efficient revenues and simply lead to the reduction of the developing investments.
The relation between the aid and the governance quality is empirically negative, showing the aid
dependence (Brautigam and Knack, 2004). The aid impacts negatively in incentive reduction and
in institutional reforms by creating a moral hazard. In this case the governmental performance in
good developing policies weakens based on Heller and Gupta (2002).
On its way of progress, infrastructure may be a potential tool against poverty. Impacts may be
resultant mostly important towards the non-income features of poverty like education,
31
Study of the world bank SYMMS ( SEM IV )
healthiness and social solidity. The scheme depicts the process of contribution among
infrastructure and its impact on growth and poverty level, merely because it creates a helpful
materialization of the MDGs. An uphold system of infrastructure form deliberate advantages in
reducing transport costs and increases expectations for healthier business prospects.
The South-East Europe region has soaring needs for infrastructure. With approximately 4 percent
of GDP, infrastructure seizes one half of the public investments of the region, thus it is hard to
increase sufficient finances from traditional sources. In Qerimi (2002), the author studied the
investments of the World Bank could create a safe base of peaceful co-existence between the
country region fulfilling this way the reaching of tolerance and openness. The good political and
economic relations form a basic EU requirement. Once the infrastructure is improved the
economic developments the Western Balkan countries would be increased and would reach the
good neighborly relations. The author concluded that both institutional and technical
infrastructure may lead the Balkans to a supplementary financial improvement by integrating the
regional collaboration.
Logistic Perception Index is a from one (worst) to five (best) rank, based on the performance
level revealing the quality of trade and transport, quality of logistic services, effectiveness of
custom clearance processes, and the ability to track and trace consignments.
32