World Bank - International Bank for Reconstruction and Development & International Development Association

October 30, 2008

This section draws from the websites of:

Background

The International Bank for Reconstruction and Development (IBRD), commonly known as the World Bank, is a UN affiliate set up to finance projects that further the economic development of its member nations. Its foundations were laid at the UN monetary and financial conference at Bretton Woods, New Hampshire, USA in 1944. It officially came to life in 1946.

Back in the post-war era, the World Bank made loans for the reconstruction of Europe. Since the late 1950s, the Bank's emphasis has shifted from Europe to the developing world. As a development bank, the World Bank issues loans and provides policy advice, technical assistance and knowledge sharing services to low and middle countries to reduce poverty.

The World Bank Group (WBG) is actually comprised of five separate arms. Two of those arms - the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) work primarily with governments and together are commonly known as "the World Bank". Two other branches - the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) - directly support private businesses investing in developing countries. The fifth arm is the International Center for Settlement of Investment Disputes (ICSID), which arbitrates disagreements between foreign investors and governments.

Structure (IBRD and IDA)

The World Bank (IBRD and IDA) is owned by 185 (IBRD, 167 IDA) member governments. Each member government is a shareholder of the Bank, and the number of shares a country has is based roughly on the size of its economy. This "one-dollar-one-vote" structure affords richer countries greater power in decisions-making processes at the institutions than poor, borrowing countries.

The United States is the largest single shareholder, with 16.39 percent of votes, followed by Japan (7.87%), Germany (4.49%), the United Kingdom (4.30%) and France (4.30%). The remaining shares are divided among the other member countries. All developing country borrowers have 39% of the voting share combined. The 47 sub-Saharan African nations command less than 6% of the votes.

The World Bank’s operations are organised through 27 Vice-Presidential Units. Six regional vice-presidencies control a large-degree of decision making on Bank operations within their own regions: Africa, East Asia & Pacific, Europe & Central Asia, Latin America & the Caribbean, Middle East & North Africa, and South Asia. Other vice presidencies are responsible for certain cross-cutting issue areas such as the financial sector or private sector development. The rest cover such areas as external affairs, development economics, legal, and human resources.

The President of the World Bank is simultaneously the head of all five arms of the World Bank Group. The selection of the President of the World Bank Group is based on a "gentlemen's agreement" between the world's richest countries: the United States Government chooses the head of the World Bank, while the largest countries of Western Europe name the head of the Interntional Monetary Fund (IMF). Formally the World Bank President is approved by the Board of Directors to a five-year renewable term. President Robert Zoellick was appointed in 2007.

Ultimate decision-making authority rests with the Board of Governors, to which each member country appoints a representative. For most countries, the Governor is the Minister of Finance (or national equivalent). The Board of Governors makes key determinations on strategic direction, membership, capital stock, budgets, and distribution of income. The Board of Governors meet once a year at the IMF/World Bank Annual Meetings to review and set broad policies and priorities.

The Board of Executive Directors oversees the day-to-day operations of the World Bank, approving all lending operations, policies and strategies, and institutional budgets and audits. It also holds discussions on operations evaluations, development trends, and strategic directions for the Bank.

The Board of Directors is made up of 24 Executive Directors, representing all member countries of the World Bank. The five largest shareholders are entitled to appoint their own representatives: United States, Germany, France, Japan, and the United Kingdom. Three "single constituency" Board chairs also have their own seat: the Peoples Republic of China, the Russian Federation, and Saudi Arabia. Sixteen Board chairs are divided among the remaining member governments. All 47 sub-Saharan Africa countries are represented by just two Executive Directors.

The Board operates largely behind closed doors, without public access to its deliberations or details about its decisions. Full Board meetings are held at least twice a week to approve all World Bank Group financing and to monitor the Bank Group's day-to-day work. Smaller Board committees meet almost daily. (source: The World Bank)

Lending (IBRD and IDA)

The World Bank’s mission is to reduce poverty – an important commitment to which the Bank should be held and against which its activities should be evaluated. In its first year of operation, 1946, the Bank lent less than US$500 million. Today, the World Bank provides between US$20 and US$30 billion annually for activities ranging from agriculture to trade policy, from health and education to energy and mining.

The World Bank is among the largest sources of public financing in the world. However, it has various roles: lender, knowledge broker and gatekeeper to development finance, all of which serve another purpose, too: to steer investor dollars and aid flows to targeted countries and sectors. The poverty focus of these investments is often questionable.

The World Bank lends money to low and middle-income governments for two general uses: investment projects and policy reforms. Investment project lending typically supports public works such as water systems, roads and schools. The World Bank also lends money for economic, institutional or other policy reforms, often known as “structural adjustment” or “development policy” lending. These reforms can influence the amount and composition of public spending in the recipient country and the design of its government’s economic and social policies, affecting things like the cost of electricity and water, labour laws and investment regulations. They sometimes tend to overrule investors interests over environmental or social concerns: FIAN (FoodFirst Information and Action Network) has investigated the influence of the World Bank on mining laws in Africa. Three case examples of Ghana, Tanzania and Guinea demonstrate that World Bank consultancy is uniquely geared towards the interests of investors and hardly accounts for the impact of mining on human rights and the environment. (source: "World Bank policy advice on mining undermines human rights in Africa")

World Bank lending can take the form of loans or grants, and the poorest countries often receive both. In recent years, the Bank has increased the proportion of its financing provided through grants.

The Bank typically requires certain actions of borrowing countries in advance of loan/grant approval and/or in the course of a project’s implementation - known as “conditions” or “conditionality.” Conditions can range from requiring a government to privatize its state-owned companies or adopt lower trade tariffs, to mandating new budget and procurement procedures. The Bank’s imposition of controversial conditions on borrowing governments has been heavily criticized over the years, as a violation of a country’s sovereignty and an undemocratic way to force reforms that can have substantial consequences on people and planet.

In 2007 of its nearly US$ 25 billion lending the biggest portion (US$ 5,5 billion) went into “law and justice and public administration”, followed by “transportation” (US$ 5 billion), “water, sanitation and flood protection” (US$ 3 billion), “health and other social services” (US$ 2,8 billion), “education” (US$ 2 billion) and “energy and mining” (US$ 1,8 billion). (source: Annual Report 2007 of the World Bank)

Policies (IBRD and IDA)

Concerted grass-roots activism, NGO advocacy efforts, and shareholder pressure pushed the World Bank to adopt policies that require varying degrees of due diligence in addressing environmental and social impacts of its financed projects.

In 1998, the Bank grouped ten of its key environmental and social policies into a set of "safeguard policies" which together are designed to provide minimal protections to the environment and vulnerable populations from the negative effects of Ban-financed operations.

The ten public sector environmental, social, and legal Safeguard Policies (IFC and MIGA, the Bank's private sector arms, apply different policies) are the following:

Environmental Assessment, of 1999 (“Umbrella policy” through which potential social and environmental impacts are identified and mitigation measures proposed. Assessment process determines whether other safeguard policies apply)
Natural Habitats, of 2001 (Establishes limits on Bank-financed projects that may impact areas with high degrees of plant and animal species and that have not been essentially modified by human activities)
Pest Management, of 1998 (Promotes the use of biological or environmental control methods and reduces reliance on synthetic chemical pesticides and sets conditions on the acquisition and use of pesticides.)
Indigenous Peoples, of 2005 (Establishes standards and procedures when projects affect indigenous communities. Recognises limited procedural rights of indigenous communities to confer or deny support to proposed projects.)
Involuntary Resettlement, of 2001 (Establishes standards and procedures for projects that displace people from their homes or cause economic displacement due to loss of land, buildings, or sources of income)
Forests, of 2002 (Establishes minimum standards on the types of forest projects that the Bank will finance. Provides for financing of commercial logging and plantations under restricted conditions)
Safety of Dams, of 2001 (Establishes procedures and safety requirements for construction of new dams and for projects that depend of safe functioning of existing dams. Requirements apply to large dams – 15 meters or more in height with some exceptions)
Projects on International Waterways, of 2001 (Seeks to reduce potential conflict between states that border an international waterway, or a bay, or a gulf, etc. over projects that may affect the use or pollute the waterway.)
Projects in Disputed Areas, of 2001 (Establishes minimal rules for Bank-financing of projects in areas disputed by two or more states)
Physical Cultural Resources, of 2006 (formerly “Cultural Property”: Has the objective to avoid, or mitigate, adverse impacts on cultural resources from development projects that the World Bank finances.)

The Safeguard policies can be found on the website of the World Bank.
Bank Information Center has developed a “Quick Reference Guide” to the Safeguards.

The World Bank was the first of the Multilateral Development Banks (MDBs) to establish an information disclosure policy in 1993. However, after six years of implementation, the Bank was confronted with increasing public demand for greater access to information.

In 2002 a new Policy on Disclosure of Information became effective, it details: principles of disclosure; exceptions to disclosure; routine disclosure; ad request-driven disclosure. The policy claims a presumption in favour of disclosure and stresses the importance of transparency for achieving development, as it stimulates public debate, broadens public understanding, and enhances transparency and accountability. Via enhanced transparency the Bank hopes for a strengthened public support for Bank activities and improved quality of assistance projects and programs.

The disclosure policy can be found on the website of the World Bank.

A network of NGOs has created the “Global Transparency Initiative” which has developed a “Transparency Charter for International Financial Institutions”, being relevant for the World Bank, too.

Complaints (IBRD and IDA)

The World Bank has a compliance mechanism, the “Inspection Panel”. It was established in 1993, when the World Bank was the first multilateral development bank to establish an independent body with oversight over the Bank’s operations. It was put in place by the Bank’s Board of Directors as a response to the criticism the institution faced over its funding for road projects in tropical rainforests and dams in highly populated areas. The Inspection Panel is a three- member body with a permanent secretariat, housed at the Bank’s headquarters in Washington, DC. Individuals and communities can address the panel if they believe that their rights or interests have been or could be directly harmed by a Bank-financed project because of a violation of the Bank’s own policies or procedures. The panel reports directly to the Board of Executive Directors. The Panel does not have jurisdiction over projects funded through the private sector arms of the World Bank Group – the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA), they have their own mechanism.

The Inspection Panel has released a brochure “We can make your voice be heard”, which they have apart from English as well in Portuguese, Arabic, Urdu, Turkish, Thai, Spanisch, French, Hindi, Chinese, Russian and Indonesian.

More information on the brochure and Inspection Panel can be found on the website of the World Bank.
Further information on the Inspection Panel and complaints can as well be found on the website of Bank Information Center.

Corruption (World Bank Group)

The World Bank says that corruption is the greatest obstacle to reducing poverty. This is because it distorts the rule of law, weakens a nation's institutional foundation, and severely affects the poor who are already the most disadvantaged members of society. The Bank therefore has established the “World Bank Group’s Governance and Anticorruption (GAC) Implementation Plan”, which aims to mainstream GAC at the country, sector, project, and global levels. Most important for the Implementation Plan are country strategies. They should address effectively and systematically GAC impediments to development and poverty reduction. The plan stresses the need to have activities catered to individual country circumstances, and aims that engagement seeks to not “make the poor pay twice.”

The plan and further information can be found on the website of the World Bank.

NGOs active on the World Bank Group

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