World Bank: Functions, Objectives and Activities

Let us make an in-depth study of the World Bank:- 1. Functions of the World Bank 2. Objectives of the World Bank 3. Activities of the World Bank.

Functions of the World Bank:

Being twin sisters, membership in the IMF is a prerequisite for membership in WB (185 countries in July, 2008).

The Bank performs the following functions:

i. To assist in the construction and development of the territories of its members by facilitating the investment of capital for productive purposes, including the ‘restoration of economies destroyed or disrupted by war’, and the encouragement of the ‘development’ of productive facilities and resources in less developed countries.

ii. To promote private investment and long run balanced growth of international trade and BOP equilibrium by means of guarantees or participations in international loans and investments.

iii. To arrange loans made or guaranteed by it, so that more useful and urgent projects receive preference.

iv. To provide finance to projects from its own capital, funds raised by it and by participating with other members.

Objectives of the World Bank:

The purposes and objectives are constantly changing. For instance, the WB decided to put emphasis on the alleviation of poverty in less developed countries in the late 1960s and 1970s. It also introduced structural adjustment programmes (SAPs) in developing countries so that not only macroeconomic stability can be attained but also structural reforms aimed at accelerating growth can be undertaken.

It has shifted its emphasis from the financing of specific projects towards non-project linked programmes. It works in developing economies with the focus of helping the poorest people and the poorest countries.

For all its clients, the Bank emphasises the need for:

i. Investing in people, particularly through basic health;and education;

ii. Focusing on social development, governance and institution-building as the major elements of poverty alleviation;

iii. Strengthening the ability of the governments to deliver quality services with greater efficiency and transparency;

iv. Protecting the environment;

v. Supporting and encouraging private business development; and

vi. Promoting reforms to create a stable macroeconomic environment conducive to investment and long-term planning.

Through its loans, policy advice and technical assistance, the WB supports a broad range of programmes aimed at reducing poverty and improving living standards in the developing world including the achievement of the Millennium Development Goals (MDGs) by helping countries develop an environment for investment, jobs and sustainable growth. The WB works with government agencies, non­governmental organisations (NGOs), and the private sector to formulate various assistance strategies.

Activities of the World Bank:

The WB offers two basic types of loans—investment loans for the support of economic and social development projects and development policy loans to support countries’ policy and institutional reforms. The WB grants loans only to the developing countries (and not all 185 members) annually at nearly $20 billion a year usually for a period of 15 to 20 years for the purpose of building roads, dams and other physical capital that contribute to their economic development.

Its lending rate is bit low and is fixed every six months. The Bank offers hard currency loans. It accepts hard currency at the time of repayment. The Bank functions as an agent on the international capital markets for countries which are unable to obtain sufficient loans on concessional terms.

Its loan provisions are:

(i) Project loans,

(ii) Sectoral loans, and

(iii) Structural adjustment loans (SALs).

The Bank provided $24.7 billion loans in the fiscal year 2008, with Africa receiving 23 p.c. of the total; Latin America and the Caribbean 19 p.c.; East Asia and Pacific 18 p.c.; South Asia 17 p.c.; Europe and Central Asia 17 p.c.; and Middle East and North Africa 6 p.c. With Bank support — both lending and advice — governments are reforming their economies and strengthening the entire financial and banking systems.

It has made remarkable success in achieving its basic objectives over the last 64 years or so. Its concern for developing countries deserve special attention. It has taken up various poverty- reduction strategies and poverty-focused lending. Bank programmes give high priority to sustainable, social and human development and strengthened economic management. Still then, the modus operandi of the Bank has come in for sharp criticisms.

One of the serious charges against the WB loan is its structural adjustment lending (SAL) or policy-based lending. The essence of SAL is loans disbursed in exchange for policy reforms like trade liberalisation, privatisation, financial sector reforms, tax reforms, etc. But various studies have shown that SALs have failed miserably in establishing a basis for healthy economic and social development in debtor country.

In most of the developing countries average incomes, investment, import, etc., have fallen drastically. Unemploy­ment and inflation have become major problems. Number of people living below the poverty line does not show any declining trend in these countries.

On the contrary, global poverty has increased and its activities are alleged to be detrimental to the environment, public health, and cultural diversity. It is also said that their Bank is an instrument that serves the interests of the USA as well as Western countries. Its functioning lacks transparency. Thus, the World Bank has not come up to the expectations of many of the developing countries. At the same time, one must not ignore the useful role the Bank has been playing all these years.