In this article we will discuss about:- 1. 1. Introduction to the World Bank 2. Functions of the World Bank 3. Membership 4. Organisation 5. Capital Resources 6. Borrowing Activities 7. Lending Activities 8. Other Activities 9. Critical Appraisal.
Introduction to the World Bank:
The key institution for financing the development programmes of a very large number of developing and developed countries is the International Bank for Reconstruction and Development (IBRD) popularly known as the World Bank. This institution was established on December 25, 1944 after the ratification of the Articles of Agreement of the International Monetary Fund and the International Bank for Reconstruction and Development by the required number of member countries.
While the IMF was designed to provide short-term assistance to adjust BOP disequilibrium, the IBRD was instituted for promoting long term development assistance on reasonable terms. The World Bank started functioning in June 1946.
Functions of the World Bank:
The main functions of IBRD are as follows:
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(i) To assist in the reconstruction and development of the territories of its members by facilitating the investment of capital for productive purposes.
(ii) To promote foreign private investment by means of guarantee or participation in loans and other investments made by private investors; and in case of the non-availability of private capital on reasonable terms, to supplement private investments for productive purposes by its own resources or by the borrowings obtained by it.
(iii) To promote the long-term balanced growth of international trade and the maintenance of balance of payments equilibrium of the member countries by encouraging international investment for the development of their productive resources.
(iv) To make arrangements for the provision of loan or guarantees by it in relation to international loans through other channels so that large and small useful and urgent projects are assisted.
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The above functions of the IBRD clearly point out that this institution strives to create and promote and not to replace the private foreign investment. Moreover, the consideration of the functions of IMF and IBRD brings home the fact that their functions are of a complementary nature.
Firstly, the objective before both is to raise national income and living standards of the member countries. Secondly, both aim at the promotion of balanced growth of global trade. Thirdly, while IMF provides short-term finances, the IBRD makes provision for long-term capital.
Membership of the World Bank:
Originally only those who were the members of IMF could become the members of the World Bank. But now any country, if it subscribes to the charter of IBRD, is eligible to become its member provided its membership is supported by three-fourth majority of its existing members.
A member has the right to withdraw its membership at any time provided it undertakes to pay back all loans with interest on due dates. In case the Bank incurs some financial loss in the year in which a country withdraws its membership, it is required to pay on demand its share of the loss. Presently, the World Bank has a membership of 184 countries.
Organisation of the World Bank:
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The organizational structure of IBRD is similar to that of the IMF. It consists of a Board of Governors, Executive Directors and a President.
All the powers of the IBRD are vested in and exercised by the Board of Governors. Each member country is represented by one Governor and one Alternate Governor for a period of five years. The Board of Governors is required to meet once a year. Each Governor has the voting power which is related to the financial contribution of the country which he represents. The alternate Governor cannot exercise the voting power unless the Governor of the concerned country is absent.
In order to carry out day-to-day functions of the Bank, the Governors have delegated their powers to a Board of Executive Directors. Presently there are 22 Executive Directors. Out of them, 5 are elected by the five largest share-holders of the Bank. These are the permanent Executive Directors. The remaining are the Alternate Directors. These Alternate Directors are elected by the member countries for a period of 2 years according to the different regions.
The President of the World Bank is also the Chairman of the Board of Executive Directors. The meeting of the Board of Executive Directors takes place regularly once a month. They determine the policy of the Bank within the framework of the Articles of Agreement. The loan and credit proposals made by the President are decided by them. They are also required to present to the Board of Governors the audited accounts, an administrative budget and an Annual Report on the operations and policies of the Bank at its annual meeting.
For executing the working of the Bank, the President of the World Bank had a staff in 1995 of 6400 persons in Washington in addition to about 1160 consultants, many of them ex-employees, and around 1000 people in other countries. The President of the IBRD is assisted by a number of Vice- Presidents and Directors of various departments and regions.
Capital Resources of the World Bank:
The World Bank started with an authorized capital of 10 billion U.S. dollars divided into 1, 00,000 shares of 1, 00,000 U.S. dollars. Out of this, only $ 9400 million was subscribed by the member countries in proportion to their economic strength. The United States was the largest subscriber. India at that time was one of the five largest subscribers to the Bank.
The subscription quota of each country was originally divided into three parts:
(i) 2 percent of the quota was payable in gold or the U.S. dollars and was freely available for lending,
(ii) 18 percent of the quota was payable in local currency and was available for lending with the consent of the member whose currency was involved, and
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(iii) The remaining 80 percent of the subscription was not payable for lending but was subject to call as and when required by the Bank to meet its obligations.
In 2005, the authorized capital of IBRD stood at $ 190.8 billion. The subscribed capital of the Bank amounted to $ 189.7 billion which was 99 percent of the authorized capital.
The funding strategy or the strategy for raising financial resources follows the four basic objectives. The first objective is to ensure the availability of funds to the IBRD through the maintenance of unutilized access to funds in the market in which it makes borrowings.
The second objective is to minimise the effective cost of loans to its borrowers. It is achieved through the currency mix of its borrowings and the time of borrowing. In regard to the currency mix, the Bank tends to maximise borrowings in currencies with low nominal rates of interest.
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As regards the time of borrowing, it is manipulated in two ways. First, the Bank seeks to raise its borrowings, when interest rates are expected to rise. Second, it seeks to defer borrowings when there is expectation of a fall in interest rates. The third objective is to have control over volatility in net income and overall loan charges. In this regard, the World Bank initiated the variable lending rate system in July 1982. The system seeks to adjust uniformly the interest charges applicable to the outstanding balance on all loans made under it.
In 1994, the variable lending rate was 7.09 percent in the second quarter of that year. The outstanding or existing loans remained unaffected by this system. As the majority of loans and borrowings will get incorporated into the new lending rate system in future, there will be considerable reduction in the volatility of interest rates. The fourth objective is to provide an appropriate degree of maturity transformation between its borrowing and lending.
The maturity transformation concerns the capacity of IBRD to lend at longer maturities than it borrows.
Borrowing Activities of the World Bank:
The World Bank is fundamentally a lending institution, which finances its lending operations, apart from subscribed capital by its members, by its medium and long-term borrowings in the international capital markets and the Currency Swap Agreements (CSA). Under the latter, proceeds of a borrowing country are converted into a different currency.
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A forward exchange agreement is executed at the same time. It provides for a schedule of future exchanges of the two currencies for recovering the currency converted. The currency swaps tend to transform the cost of original borrowing to a cost which reflects the market yield of the currency obtained in conversion.
The borrowings can be made by the World Bank also under the Discount Note Programme. Under this programme, borrowings are contracted by the World Bank in two ways. Firstly, it places bonds and notes directly before the governments of member nations, government agencies and their central banks. Secondly, the IBRD offers issues to investors and in public markets through the investing banking firms, investment banks and commercial banks.
Two new borrowing arrangements have been evolved by the World Bank. These include the Central Bank Facility (CBF) and the borrowing in Floating-Rate Notes (FRN). The former is a one year U.S. dollar dominated facility for borrowing from the sources like central banks. There has been a declining trend in World Bank to borrow from such sources since 1970’s. The latter facility is meant to enable the Bank to realise some of the objectives of its funding strategy.
The FRNs carry a medium/long-term maturity and the FRN market permits the World Bank access to a set of investors like commercial banks and certain other financial institutions which have traditionally not bought the IBRD notes.
Apart from the above borrowing arrangements, a substantial part of World Banks’ resources accrue from its retained earnings and the repayments of outstanding loans from the member countries.
Lending Activities of the World Bank:
The IBRD advances loans to the member countries through any of the following ways:
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(i) Grant of loans out of its own funds,
(ii) Participation in loans out of funds raised in the market of the member country or otherwise borrowed by it,
(iii) Guaranteeing of loans either in part or in whole made by private investors through the usual investment channels.
A constraint has been placed upon the World Bank that the total amount of outstanding direct loans, participation in loans and guarantees of loans should not exceed 100 percent of its unimpaired subscribed capital, reserves and surplus.
The World Bank’s loan operations including the making of direct loans, participation in and guaranteeing of loans is governed by the following conditions:
(i) The Bank is satisfied that in the prevailing market conditions, the borrower would not be able to secure loan under the conditions that are considered reasonable by it.
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(ii) The loans are meant for specific projects of reconstruction and development except in special circumstances.
(iii) If the member country in whose territory the project is located, is not itself the borrower, either the member country or its central bank fully guarantees the repayment of the principal, the amount of interest and other charges upon the loan.
(iv) The loan for a specified project is recommended by some competent committee through a written report after a careful study of the loan proposal.
(v) The borrower or the guarantor of loan is in a position to meet its obligations towards the World Bank.
The IBRD usually provides medium-term and long-term loans running upto the completion of the project for which the loan has been extended by it. The long-term loans are repayable over a period of 20 years or less with a grace period of 5 years. The interest rate on loans charged by the Bank is calculated in accordance with the guidelines related to its cost of borrowing.
That is the reason why the World Bank loans carry varying rates of interest. In addition, the Bank charges 0.75 percent annual commitment charge on the outstanding balances. There is also a charge of once-over front-end fee on the amount of loan.
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Since the inception of lending operations of the IBRD in 1946, its lending concentrated heavily upon the provision of capital for infra-structural projects such as roads and railways, generation and distribution of electricity, irrigation projects, ports development, telecommunications etc. for the first two decades.
Since 1970, the emphasis in its lending operations has shifted from infra-structural projects to the financing of educational system in developing countries, creation of institutions for financing industrial investment and provision of technical assistance for the selection and appraisal of industrial projects and to assist in the preparation of agricultural projects.
The present lending strategy of the World Bank places greater emphasis upon investments affecting directly the welfare of the poorer sections in the developing nations through assistance to projects raising the productivity and standard of living. In this regard, the mention may be made of the financing of the projects for agriculture and rural development, education, nutrition programmes, family planning, provision of drinking water, low cost housing and improvement of drainage and sewerage system in the developing countries.
In fact, the participation of IBRD in the overall structural and social development of the LDC’s has increased considerably during the last few decades.
During 1980’s, the World Bank introduced two lending facilities for the member countries.
These are:
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(i) Structural Adjustment Facility (SAF):
This facility was introduced by the IBRD in 1985 to assist the borrowing countries in reducing their international payments deficits while maintaining the pace of growth, the funds provided under SAF are meant to finance imports of goods except those of luxury goods and military imports. The SAF is released to the borrowing countries in two parts and it is subject to stiffer conditionality specified by the World Bank. This facility is intended to render support to programmes extended over 5 to 7 years through a series of SAF’s to a borrowing nation.
(ii) Enhanced Structural Adjustment Facility (ESAF):
The World Bank instituted the Enhanced Structural Adjustment Facility (ESAF) in December 1987 for increasing the availability of concessional funds to the poor member countries. Under this facility, the Bank would provide new concessional resources aggregating SDR 6 billion financed through special loans and contributions obtained from the developed and OPEC countries.
Like SAF, even this facility is aimed to assist the borrowing member countries to reduce their BOP deficits and stimulate growth. The repayments under this facility are to be made in 10 six-monthly installments commencing after 5-1/2 years of disbursement of loans. It carries the interest rate of 0.5 percent per annum.
(iii) Special Action Programme:
In order to assist the member countries to adjust to current economic environment, the IBRD initiated a Special Action Programme (SAP) in 1983.
The main elements of this programme are as follows:
a. Expansion in lending for high priority operations that support structural adjustments, policy changes, production for exports, fuller use of existing capacity and the maintenance of crucial infrastructure.
b. Accelerated disbursement of loans both under the existing and new investment commitments to ensure timely implementation of high-priority projects.
c. Expansion of advisory services on the formulation and execution of appropriate policies including the reviews of public enterprises, studies to strengthen growth-oriented capabilities, studies to raise domestic mobilisation of resources, studies of incentives for export promotion and diversification, and exploration of ways to strengthen debt management policies.
d. Enlisting efforts by other donors for ensuring rapid disbursement of aid in support- programme of the IBRD and the IMF. About SAP lending it has been decided that there cannot be more than 10 percent of the IBRD lending.
The Special Action Programme is thus directed to streamline and rationalise the financial arrangements for maximising the benefits of assistance to the member nations.
e. B-Loan and Export Credit:
In order to assist the borrowers of the Bank to enhance and stabilise flows of private capital on approved terms by linking part of commercial bank flows to IBRD operations, the Executive Directors authorized in January 1983 the establishment of a new set of co-financing instruments.
These instruments which constitute B-Loan pilot programme include three options:
(a) Direct participation of the Bank in the late maturities of B-Loan;
(b) Bank guarantee of the late maturities, with the possibility of release from all or a part of its share; and
(c) Acceptance of the Bank of a contingent obligation to finance an element of deferred principal at final maturity of the loan with level debt-service payments with floating rate of interest and variable amounts of principal repayment. In addition, the Board approved the prearranged sale of participations in Bank loans arranged on commercial terms.
Other Activities of the World Bank:
In addition to the world-wide massive lending operations of the IBRD for the development projects in the member countries, the Bank performs many other activities including are given below:
(i) Technical assistance,
(ii) Inter- organisational co-operation,
(iii) Training,
(iv) Economic research and studies,
(v) Evaluation of operations,
(vi) Settlement of investment related disputes among the member countries, and
(vii) Promotion of International Peace.
(i) Technical Assistance:
A highly important and core element of the activities of the World Bank has been its programme of technical assistance to the member countries. The IBRD technical assistance is concerned with feasibility studies, engineering designs, construction supervision, diagnostic and institutional studies and management support and training. The technical assistance programme includes the provision of funds for supervision, execution, engineering services, energy, transportation, industry etc. In 1975, the Bank created Project Preparation Facility (PPF).
Through this facility, the Bank makes advances to the prospective buyers for enabling them to fill up the gaps in project preparation and creation of necessary institutional structure for it. The IBRD serves also as an executing agency in case of the projects financed by the United Nations Development Programme (UNDP).
Moreover, the Bank offers to the member countries the advice on development planning, deputation of staff members to render technical advice to the member countries, transfer of technology service on evaluation and monitoring panels over the years. Bank’s technical assistance activities have expanded substantially both in volume and variety and many of them have figured as components of Bank loans on IDA credits.
The technical assistance programme of the World Bank can be evaluated just on the basis of the fact that some member countries which no longer require a net transfer of financial resources from the Bank nevertheless want the IBRD to continue project lending for key sectors of the economy to have the benefit of transfer of its specialised technical advice.
(ii) Inter-Organisational Co-Operation:
An important activity of the World Bank is the promotion of co-operation among several international organisations such as Food and Agricultural Organisation (FAO), World Health Organisation (WHO), the United Nations Educational, Social and Cultural Organisation (UNESCO), the United Nations Conference on Trade and Development (UNCTAD), the General Agreement on Trade and Tariff (GATT), the United Nations Development Programme (UNDP), the United Nations Environment Programme (UNEP), the United Nations Industrial Development Organisation (UNIDO), the International Fund for Agricultural Development (IFAD), the Asian Development Bank (ADB), International Finance Corporation (IFC), the African Development Bank, the International Labour Organisation (ILO) etc. The World Bank has played active role in promoting co-operation among these institutions on the basis of formal inter-organisational agreements.
(iii) Training:
A staff college was established by the World Bank in 1956 for providing training to the senior officials of the member developing countries. It is known as the Economic Development Institute (EDI). The training provided by this institute enables them to improve the management of their economies and to raise the efficiency of their investment programmes.
The fields of training include macro-economic planning and development policies, rural health care, agricultural research management, energy policy, industrial policies, railway management etc. There is a network of regional institutes of EDI. The seminars are organized by EDI in Washington and other regions in collaboration with regional training institutes.
(iv) Economic Research and Studies:
The World Bank started research in economic, social and several other fields in 1971. About 3 percent of its administrative budget is devoted to economic and social research. By mid-1980’s, 165 research projects had been completed and 180 were in progress. The Research Policy Council (RPC) was instituted by the World Bank in 1983 with the object of providing leadership in the guidance, co-ordination and evaluation of all research work undertaken by the Bank. The RPC is advised by a Bank Research Advisory Group (BRAG).
The research activities are undertaken by Bank’s own research personnel and also in collaboration with outside researchers. A small but more technically oriented Research Projects Approval Committee has also been established. The World Bank helps the less developed member countries also to strengthen their indigenous research potential. The elaborate and extensive arrangements have been made to disseminate the information related to research work in various international publications.
(v) Evaluation of Operations:
In order to assist the borrowers in the post-evaluation of their Bank-assisted projects, the IBRD has created its Operation Evaluation Department (OED). The OED staff undertakes performance audit of the various projects in collaboration with officials of the member countries. The EDI also provides training to the staff of the borrowing countries in monitoring and evaluation of projects.
(vi) Settlement of Investment Related Disputes:
The World Bank has created machinery for the settlement of disputes related to investment between the member nations and foreign investors. This machinery known as the Convention on the Settlement of Disputes between States and Nationals of other states started its operation on October 14, 1966.
Under the convention, an International Centre for Settlement of Investment Disputes (ICSID) has been set up to provide facilities for the settlement by voluntary recourse to conciliation or arbitration of investment disputes between them. All the member countries have already ratified this convention.
(vii) Promotion of International Peace:
The IBRD has worked to promote international peace by assisting the member countries in resolving some complex economic and political disputes such as the river-water dispute between India and Pakistan. The efforts of World Bank culminated in the creation of Indus Basin Development Fund. Similarly, World Bank successfully intervened and assisted in resolving the dispute between Britain and Egypt on the nationalisation of Suez Canal by the latter.
Thus the World Bank provides diverse financial, technical and other services for accelerating the pace of development in the less developed countries.
Critical Appraisal of the Working of the World Bank:
The International Bank for Reconstruction and Development (IBRD) has made a highly significant contribution in the stabilisation and expansion of the international economy. In the initial years, it assisted in a big way for the reconstruction and rehabilitation of war-devastated economies of the West European countries.
Since then, the World Bank has been engaged in the task of meeting the liquidity requirements of its member countries not only for balance of payments adjustments but also for the creation of infrastructure facilities, development of basic and heavy industries, raising the efficiency and productivity of labour and for raising the living standard of the member countries.
Upto June ending 1992, the World Bank had extended more than 21 percent of the loan assistance for the development of energy, 19 percent of the assistance for the development of transport and communications and 18 percent for the agricultural and rural development.
The remaining loan assistance had been provided for the creation of development finance institutions, education, health and nutrition, population, urban development, tourism, water supply and sewerage projects in the member countries. It is thus clear that the World Bank, through its credit operations has been making highly useful contribution in the overall development of the economies of the borrowing countries.
Upto the year ending June 1992, the aid flow from World Bank to the Latin American and Caribbean countries was of the extent of 32.8 percent of its total loan assistance. It was followed by 23.5 percent to East Asia and Pacific region, 14.5 percent to Europe and Central Asian region, 11.75 percent to the South Asia, 9.6 percent to North Africa and Middle East and 8 percent to Africa.
The World Bank has assisted also in the creation and proper functioning of such international financial institutions as IDA, IFC, and ADB etc. These institutions seek to provide assistance for promoting sustained and accelerated growth of both public and private sector enterprises in the developing member countries.
Despite all its achievements, the functioning of the World Bank has been subjected to some criticism.
This criticism is on the following main grounds:
(i) Insufficient Aid Flow:
It is of course true that the World Bank and its affiliate financial institutions have considerably expanded their capital resources and credit operations over the years but still IBRD has failed to become an effective agent of growth in the under-developed regions of the World. The poor countries are still faced with serious resource crunch and their economies continue to remain plagued with the problems of backwardness and poverty.
During the more recent years, although aggregate resource transfer from the World Bank and IDA has considerably expanded, yet in real terms the availability of funds for the poorest regions of the world has declined.
(ii) High Interest Rate:
A major objection against the World Bank assistance is that the interest rate on loans is quite high. It is argued that World Bank loans are fully secured because of the guarantees from the governments of the borrowing countries and there is no fear of any capital loss. In such circumstances, there is little justification in charging high interest rates. Even if it is conceded that the World Bank should be run on the sound banking principles, but that consideration should not result in the abandonment of Bank’s objectives of accelerated development and removal of poverty in the backward regions of the world.
It is true that the Bank has rationalised the determination of lending rate. Now the lending rate is reviewed quarterly and is pegged at 0.5 percent above the weighted average rate on the borrowings of the Bank in the preceding 12 months. This approach is certainly flexible and has brought some reduction in interest rate. Many poor countries still consider the rate of interest of World Bank lending as high and that keeps them away from availing of the World Bank assistance.
(iii) Condition Concerning Repayment Capacity:
The World Bank’s insistence upon the condition of repayment capacity of the borrowing country is orthodox, arbitrary and short of wisdom. The less developed borrowing countries have vast untapped natural resources awaiting exploitation. The role of the Bank should be to help create the repayment capacity of the borrowing member nation rather than denying assistance on the presumption that the borrower would not have the repayment capacity in future.
Whether a borrowing country will or will not have the repaying capacity, can be determined only after the utilisation of funds and not before any assistance is granted to it. The World Bank needs to relax this arbitrary condition and allow opportunities to the borrowing countries to acquire greater economic strength and repaying capacity.
(iv) Faulty Lending Operations:
Right since its inception, the lending operations of the IBRD are predominantly for the creation of infrastructure rather than on directly productive projects in agriculture, industry and mining. Upto 1971-72, the infrastructural investment accounted for 74 percent of aggregate Bank lending. In the subsequent period, the infrastructural lending was more than 60 percent of the total amount of loan while the proportion of loans to directly productive projects was about 29 percent of aggregate advances.
No doubt, development of infrastructure has much significance in the long run development but a little higher priority to the specified projects in industry, mining, agriculture and construction could have resulted in higher growth rates in the less developed borrowing countries.
(v) Inequitable and Discriminatory Regional Allocation of Loans:
The region wise assistance flow from the World Bank has been criticised on the grounds of inequity and discrimination. Upto 1970-71, the World Bank assistance was predominantly directed towards the countries of Europe, Australia, and Japan etc. These countries were relatively more developed. The credit needs of the poor and over-populated regions of the world remained grossly unattended. It was clearly inequitable. Moreover the World Bank, right from the beginning, seems to be more inclined to meet the credit needs of the Latin American and Caribbean countries compared with the other undeveloped and under-developed regions of the world.
This is evident from the fact that aid flow to Latin American and Caribbean countries constituted 32.8 percent of the aggregate credit extended by the World Bank upto June 1992. In contrast, the aid allocation to South Asia was just 11.75 percent and to Middle East and Africa only 8 percent of total loans. There seems to be not much sound economic justification of this skewed and discriminatory distribution of aid over the different regions of the world.
(vi) Stiff Conditionality Clauses:
Since the mid-1980’s introduction of Structural Adjustment Facility (SAF) and Enhanced Structural Adjustment Facility (ESAF), the lending operations of both IMF and World Bank have resulted in the enforcement of stiff conditionality clauses on the borrowing nations. These conditions are concerned with free international trade, budgetary reforms, reforms in debt management, policies related to public sector investment, pricing policies of public enterprises and management of public enterprises etc.
The second tranche of SAF is released only after review of date-bound reform programme is made by the Bank officials. The conditional clauses are generally resented by the statesmen and general public in the borrowing countries as they encroach rather excessively upon their sovereignty. In this context, the U.S. civil rights leader Jesse Jackson told a group of 11 African Heads of States in Gabon in May 1993, “They no longer use bullets and ropes. They use the World Bank and IMF.”
(vii) Faulty Procedure for the Selection of Projects:
The World Bank predominantly provides project assistance. The procedure for the selection and evaluation of projects for the grant of assistance is very strict and tiresome.
(viii) Credit-Worthiness Criteria:
The World Bank loan operations are criticized by the borrowing countries also on the ground that the Bank strictly enforces credit-worthiness criteria. The Bank satisfies itself not only about the credit-worthiness of the project but also the credit-worthiness of the country. Such criteria may be justified when these are applied by the typical commercial banks upon the individual borrowers. But it is not proper to enforce them upon the countries.
(ix) Political Bias:
A very serious objection against the World Bank lending operations is that there is political bias. The major part of aid flow from the World Bank and its affiliated institutions has invariably gone to the countries having political alignments with the United States in particular and western countries in general. The per capita assistance to the countries like Pakistan, Senegal, Egypt and Israel is more than the per capita aid flow to countries like India which adopted independent and non-aligned political and economic policies.
The most glaring recent instance of political bias in the extension of aid concerns Russia. In the last few years, the U.S.A. has been exerting pressure upon IMF and World Bank to extend concessional long-term assistance to Russia purely on account of political considerations. It is primarily because of the political reasons that the lion’s share of the World Bank aid has gone to the Latin American countries. The World Bank and its affiliates have served as instruments to promote the U.S. economic and political interests.
(x) Drying Up of Concessional Assistance:
IDA is the soft loan window of the World Bank. With the increased demand for concessional aid from China and countries of Eastern Europe and erstwhile Soviet Union, the soft loan facilities have been shrinking. In addition, the graduation procedure is applied upon the member countries on the basis of GNP criterion. As the GNP of a country rises above a specified level, the country is declared graduated from IDA assistance. The eligibility of the LDC’s for IDA assistance should be linked with the per capita income criterion and not the GNP criterion.
(xi) Aggravation of Poverty and Disparity:
The World Bank is supposed to realize the goals of poverty-reduction and equity. But the critics have charged it with aggravating world poverty and increasing disparity between the rich North and the poor South. The United States, Britain, Japan, Germany, France and Canada, being the main donor countries of the Bank not only control the voting rights, but have also earned very lucrative returns from loans to the poor and developing countries.
According to a 1991 United Nations Development Programme Report, the World Bank actually drew 500 million U.S. dollars in terms of repayments, with interests and purchases in the markets of not only the industrially rich countries but even from the hopelessly indebted countries of Africa.
Between 1988-92 Latin American countries paid the Bank over 6 billion dollars, with 3.2 billion dollars paid in 1992 alone. According to the London- based Centre for Accountability and Debt Relief, almost 80 dollars of every 100 dollars lent to Africa by the World Bank had “returned immediately North in either servicing old debt or often failed project lending, or in support of northern suppliers of goods and services”. An instance can be cited in this regard. While Switzerland put up only 225 million dollars in the World Bank and IDA capital resources, the Swiss suppliers earned 485 million dollars in 1993 from the World Bank.
(xii) Over-Staffed and Extravagant Institution:
The U.S. and several other countries have expressed serious concern about the over-staffed structure of the Bank and overly generous salaries and benefits. It is criticized as a body which produced, phenomenally large volumes of 1, 00,000 sheets of waste paper per employee per year to be recycled.
Despite serious shortcomings in the functioning of IBRD, it must be fully acknowledged that the World Bank has been engaged in difficult task of supporting the development efforts being made by the developing member countries through the provision of project loans, concessional loans through IDA and the channeling of assistance for the expansion of private sector enterprises through the institutions such as IFC and ADB.
What is required is a more considerate and permissive approach rather than rigid conditionality. If the proper adjustments in its organization and operations are made, it can certainly become an important vehicle of global economic growth.
During the recent years, some far-reaching developments have taken place. They are likely to diminish considerably the role of the World Bank and ADB. These include the establishment of New Development Bank by BRICS (Brazil, Russia, India, China and South Africa) in July 2014 and the institution of Asian Infrastructure Investment Bank (AIIB) launched by 21 Asian countries led by China in Oct. 2014. India is one of its founding members.
The AIIB has the authorized capital of $ 100 billion and it will start functioning in December, 2015. These two institutions are likely to pose very stiff challenge to the World Bank and ADB in the years to come.