World Bank: Top 9 Things to Know about World Bank

The following points highlight the nine things to know about the World bank.

Things to Know # 1 Objectives of the World Bank:

The objectives of the World Bank have been entrusted in Article I of the Agreement.

1. Development and Reconstruction of Member Countries:

The main function of the Bank is to help in the reconstruction and development of member countries by investing more capital for productive purposes such as:

(a) Reconstruction of economies destroyed by war;

(6) Encouragement to productive resources in less developed countries;

(c) Reconstruction of productive facilities.

2. Encourage the Dvelopment in H.D.C. :

The main objective of the World Bank is to encourage the development of productive resources by supplying them sufficient capital. It also helps in the establishment of various projects of infra structure like power, transport, communication, irrigation etc. in backward countries which, in turn, accelerate the pace of economic development.

3. Promote Private Foreign Investment:

Another objective is to promote foreign investment by means of guarantees/loans. The World Bank makes loans for productive resources out of its own capital or from borrowed funds.

4. Maintain Equilibrium in the Balance of Payment:

The World Bank helps to maintain equilibrium in the balance of payment by encouraging investment for development activities and, thus, raising productivity, the standard of living and conditions of workers in the concerned countries.

5. Change War Economy into a Peace Time Economy:

Another function of the World Bank is to bring about a change from a war economy to a peaceful economy. It brings by conducting international investment on business conditions of the member countries.

6. Supplement Foreign Investment:

It also arranges the loans and guarantees in relation to international loans for the development of more useful and urgent small and large projects at priority level in their countries.

7. Establishment of Peace Time Economy:

The fourth objective of the Bank is to help the member-countries change-over from war-time economy to peace-time economy.

8. Environmental Protection:

Global environmental protection is also an objective of the Bank. To this end, World Bank gives substantial financial assistance to those under- developed countries which are engaged in the task of environmental protection.

9. Raise Productivity and Standard of Living:

Another function of the World bank is to raise the productivity and standard of living of the people of member countries. It makes special programme for the development of productive resources.

Things to know # 2. Membership of the World Bank:

The World Bank had 180 members. However, any country is eligible for the membership of the World Bank but it is necessary to have the membership of IMF. A member can withdraw its membership at the written notice. If a country fails to fulfill its obligations toward the Bank, it lead to suspension. Even when a government ceases to a member, it is obliged to repay on demand its portion of the losses, if any.

Things to Know # 3. Management of the World Bank:

Management of the World Bank consists the following four committees:

(1) Board of Government:

Board of Governors represents the General Council of the Bank. Every member country appoints one governor and one alternative governor for the period of five years. No alternative governor can vote except in the absence of his principal. Board of Governors selects from its members one president who presides over its annual meeting. The Board meets generally once a year.

This general meeting is convened along-with the general meeting of the IMF in any member country. Each governor has the voting power which he related to the financial contribution of the government which he represents.

Board decides the policy of the Bank. Following visits are enjoyed by the Board:

(I) Admission of new members,

(II) Termination of the membership,

(III) Change in the capital,

(IV) Distribution of the income of the Bank,

(V) Agreement with international institutions and

(VI) Liquidation of the Bank.

(2) Board of Executive Directors:

Board of Executive Directors consists of 22 members. Of these, five members have the largest subscription. They are: America, Britain, Germany, France, Japan. The remaining are elected from among the other members of the Bank, for a two-year term. Board of Executive Directors can appoint any person, who is not a member either of Board of Governors or Board of Executive Directors, its President.

He is the chief officer of the Bank. He acts according to the directions of the Board of Directors and is responsible to it. He is authorised to appoint all other officers of the Bank. Board of Executive Directors is responsible for day to day conduct of the Bank’s operations.

(3) Advisory Council:

It consists of minimum 7 members. They are appoint by Board of Executive Directors. The members of council are expert on different fields such as banking, foreign trade, industry, labour agriculture etc. Their meeting is held once a year. The council renders its advice on different issues.

(4) Loan Committees:

Whenever the member-countries apply for loans, the Board of Executive Directors appoints a Loan Committee. This Committee scrutinizes loan application and gives its report on the proprietary of the loan.

Things to know # 4. Capital of the World Bank:

The authorised capital of the Bank was 10,000 million dollar at the eve of its establishment which was divided into 1, 00,000 shares. In 1959-60, the authorised capital of the Bank was raised to 21,000 million dollars. The subscribed capital was 21,166 million dollars. On June 30, 1964.

The main objective of enlarging the capital of the Bank was to strengthen its ability to borrow funds for financing loans for economic development. On June 30, 1982, the subscribed capital of the World Bank was 43,165 million dollars. Similarly, the authorised capital of the Bank was 78,259 million dollars in the same year.

The subscription quota of each country was divided as follows:

(i) 2 per cent of quota to be paid in gold or US dollars.

(ii) 18 per cent to be paid in-local currency.

(iii) The remaining 80 per cent in required to meet the obligations of the Bank.

According to the Annual Report 1983, the subscribed capital of the Bank was 52,089 million dollars. In the fiscal year 1983, the subscribed capital of the World Bank increased by SDR 9,237 million. At present, the authorised capital stock of the IBRD comprises 7, 05,000 as against SDR 1,00,000 each.

Out of it, 3, 18,221 shares have been subscribed. Therefore, its subscribed capital is SDR 3, 18, 22,100. In 1986, subscribed capital was expected 77,429 million dollars. During 1995-96, the capital has further been increased to $17,000 crore. The authorised capital of the bank is $18,405 crore.

Things to Know # 5. Role of World Bank:

1. Executive Director:

India has been a permanent member of the Board of Executive Directors for many years.

2. Loans:

India got sufficient amount of loans from the World Bank for its development projects. In 1949, India secured the first loan amounting to 340 lakh dollars for Indian railways. Till 1995 India had obtained loans aggregating 4,200 crore. India is the largest borrower of the World Bank. Of the total loans advanced by the Bank, share of India amounts to 15 percent.

India has secured loans specially for the development of the following projects:

(i) Promotion of railway and other material equipment.

(ii) Promotion of agricultural machinery.

(iii) Financing the power projects of the Damodar Valley Corporation.

(iv) Purchase of aircrafts and AK India corporation.

(v) Development of Keyna Power Projects in Maharashtra.

(vi) Promotion of finance to Tata Iron and Steel Company.

(vii) Financing the power house of Trombey.

(viii) Development of Private Sector in coal industry.

(ix) Development of Calcutta and Madras Ports.

(x) Financial help to the Industrial credit and investment Corporation of India.

(xi) Financial help to Industrial Development of India.

(xii) Coal Industry

(xiii) Water Supply and sanitation.

(xiv) Road construction

(xv) Off-shore petrol projects and refineries.

(xvi) Irrigation projects

(xvii) Cement, Rubber and Electronic Industry.

3. Financial Assistance:

India got liberal financial assistance for non-projects also.

These projects included railway, coal, mine, steel, fertiliser, oil and gas, power and national highways etc. An agreement with Food and Agriculture organisation of U.N. was made to assist many projects in the country.

During 1964-65 grant was to the tune of about 250 million dollars. Again during 1993-94 oil, gas, coal, power and national highway got the grant of $ 144.8 crore and $ 80 crore in 1996. Moreover, India got the facilities for general loans which can be used at its own accord.

4. Aid India Club or Consortium:

In August 1950, Aid India Club was setup by the World Bank which provide more financial assistance and foreign currency to India. Among its members are countries like America, England, Japan, Germany, and Canada. The club has given substantial amount of loans in the form of foreign currency to India. During the financial year of 1986, India got $ 2368.3 million.

In 1993, India got loans and assistance worth $ 670 crore from this club. It is not called India Development Forum. In its first meeting held on 29th July 1994, fifteen private corporations of India and many multi-national corporations were invited. It decided to provide loans amounting to $ 600 crore for implementing its structural adjustment.

5. Mediation between Indo-Pak River Water Disputes:

A serious dispute took place between India and Pakistan on the sharing of water of the rivers of Punjab. World Bank acted as mediator to find out a solution. As a result, both the countries were brought to the negotiating table in 1952 and to in 1959 the dispute was amicably settled.

6. Benefits from Membership of Sister Institutions of the World Bank:

As a member of the World Bank, India has availed of the membership of its sister institutions.

(1) International Finance Corporation:

This corporation was founded in 1961 to provide loans to the private sector of the member countries. So far 57 companies of India have been able to secure foreign investment worth $ 100 crore through this corporation

(2) International Development Association:

It was in 1960 with the aim of providing loans to poor countries on concessional rate. India obtained a loan of 130 crore dollars from this Association is 1996. These loans are mainly meant for agriculture, population control and development of roads.

(3) Multilateral Investment Guarantee Agency:

It was established in 1988. Its objective is to give guarantee against risk, in order to encourage foreign investment in the private sector of developing countries. India became its member in 1993.

7. Technical Assistance:

World Bank has provided technical assistance to India for its varied projects from time to time. It has sent about 15 Expert teams of India. After assessing the development projects in India, these experts gave valuable suggestions.

The various expert committees surveyed different parts of the country and gave several suggestions for the economic development under various five year plans. World Bank has its resident Representative at New Delhi. He has a constant liaison with the government of India regarding development projects.

8. Population Control Assistance:

World Bank has given loans amounting to $ 495 crore to India for the proper implementation of population control programme and for urban development.

9. Help Non-government Organisation:

The Bank has given financial help too many non-government organisations which are involved in public welfare activities.

They are:

(1) National Leprosy Elimination

(2) Basic Education project

(3) Child Development Services Project, etc.

Things to Know # 6. Criticism of the World Bank in India:

Although the World Bank has made significant contribution in different countries of the world, yet it is not quite free from short-comings. The bank has also played a vital role outside the sphere of finance by serving as a mediator between different countries of the world.

But the failures of the Bank in our country have been made on the following grounds:

1. Inadequate Loan Assistance:

In the opinion of many critics, it is pointed out that World Bank (IBRD) has not provided an adequate assistance to India to meet the requirements of the country. It has not granted as much loans to India as it required to accelerate the pace of development in various sectors.

2. Development of Limited and Specific Projects:

The bank has provided only limited loans to India for the Development of specific projects. The developing countries like India are not able to take loans for the general development of the economy.

3. Complex attitude of the World Bank:

In 1980 with the entry of China, India had undergone a sea change with the complex attitude of the World Bank towards it. Moreover, it stressed the development of private sector instead of public sector.

4. Economic Reforms at Behest of World Bank:

It is felt that world bank is largely responsible for economic reforms introduced in the country since 1991. According to critics these reforms will benefit only multi-nationals but not the poor masses.

5. More Dependence:

It is argues that India’s dependence on world bank has been increasing. This has affected India’s economic freedom to a greater extent.

6. Interference:

It is felt that devaluation of Indian rupee in 1966 as well as in 1991 has been done at the behest of World Bank. This is in fact, direct interference to influence economic policies of the country.

Things to Know # 7. Functions of the World Bank:

1. Loans out of its Own Funds:

The World Bank collects capital from its member countries and creates funds out of it needed by member countries. Thus, it has the privilege to make loans out of its own capital or funds borrowed by the Bank.

2. Loans Granted by the Bank:

The Bank encourages private investors to lend their funds by granting the repayment of loans and funds.

The Bank makes loans to its member countries in the following ways:

(a) By participating or making the loans out of its own funds;

(b) By participating or making indirect loans out of the funds increased in market of a member country or otherwise borrowed by the Bank;

(c) By granting in whole or in part loans made by private investors through the investments channels.

However, there are certain conditions which are being followed by IBRD granters. They are:

i. It is maintained that in the prevailing market conditions, the borrower would be unable to obtain the loan under conditions in which the opinion for the Bank are reasonable to the borrower.

ii. Loans are taken for the specific projects of reconstruction and development.

iii. If the member country in whose territory a project is located, the member or its central bank guarantees the repayment of loans and the payment of interest and other charges on loan.

iv. The protects for which the loan is seeked, have been recommended by the competent authority in a written report from; after a careful study of the merits of the proposal.

v. The borrower or guarantor is in a position to meet the obligations under the law.

3. Guiding Principles:

The Bank follows certain principle in lending and borrowing operations. They are stated as under:

(i) The bank should have the capacity of repayment of loans by taking into consideration the availability of natural resources and existing productive plan capacity to exploit the resources within the country.

(ii) The bank should lend only specific projects which are economically and technically sound. The bank should not interfere in any political affairs of the member countries.

(iii)To meet the needs of foreign exchange for any project, bank lends the loans.

(iv) The bank does not expect to spend in loans in any particular country from the borrowing countries.

(v) The bank stresses on the promotion of local private enterprises.

(vi) The bank keeps a continuous and a close touch with the borrowers to check the performance and to offer requisite advice and help whenever it is necessary.

(vii) The bank should not be prudent in making loans.

4. A Dual Role of both a Lender and a Borrower:

The Bank performs double role as lenders and borrowers. As the capital subscribed by its members was never intended to finance all its operations are as it was very significant compared to needs, the bank has also to borrow funds besides lending funds to others.

5. Rate of Interest:

The bank charges interest on the loans given from the member countries, which varies from time to time, the bank also charges commission from 1 to 1.5 per cent on the loans guaranteed by it. The bank has been changing 10.97 per cent on its loans since July 1972 but it has cut its rate of interest from 9.87 per cent to 9.29 per cent on loans.

6. Loans for Specific Development Projects:

The bank provides loans for specific development projects in the field of agriculture, power, transport, industry, population planning, telecommunication, urban development and education. In underdeveloped countries, the bank makes loans for the development of transportation and communication facilities to develop their domestic economic conditions.

7. Role of Mediator:

The bank has played a role of mediator in solving certain difficult international disputes between UK and UAE regarding the nationalisation of Suez Canal. In this way, it is helpful to solve the various problems of less developed countries.

8. Assistance to Underdeveloped Countries:

The bank has made stern efforts to provide assistance to underdeveloped countries through the loans. ‘Aid India Club’ provides these efforts to the bank.

This is a landmark in co-operative western aid to underdeveloped countries. The IBRD has lent borrowers a commutative total amount of $ 38610.5 million mostly to developing countries for financing the development projects in member countries.

9. Loans for International Finance Corporation:

The International Finance Corporation was set up in July 1956 to give financial assistance to the private enterprises in member countries.

In 1990-91, the financial loans of the World Bank were of 60 billion dollars. The IBRD had made available total of 1453 loans amounting to $ 38609.7 million to 116 member countries representing 90 per cent of the members for more than 1150 projects in addition to granting 6 loans of $ @ 550 million to the International Finance Corporation.

10. Loans for International Development Association:

International Development Association was established in Sept, 1960 with the objective to encourage the industrial development in backward and underdeveloped countries. The bank prepares annual economic schemes for developing countries which provide loans for the economic development.

During 1976-77, under the intermediate Finance Facility, known as the Third Window, established in 1975-76 to enable the bank to provide development assistance on terms intermediate between the bank and International Development Association $ 222.6 million in 11 loans were lent and by the fiscal year on 30 June 1980, the total lending on the Third Window terms amount to $ 670.4 million for 31 projects.

11. Technical Assistance:

The Bank provides technical assistance to its member countries to give priories to different projects. It also makes requisite modification in the technical plans to bring down the cost of projects. It makes technical assistance for the undeveloped countries, through the development of national survey programmes.

The bank gives advice to the government of member countries to conduct the training programmes with the help of financial assistance. To assist the developing countries in increasing their foreign exchange and income through the development of tourism, the bank has established a new Tourism Projects Department.

The bank had provided a highest content of advice assistance for the preparation and supervision of various projects financed by it. The bank works as the executive agency for the studies financed by it. The technical assistance provided by the bank becomes important to plug the gap in the technical knowhow in the developing countries.

12. Staff College:

The Economic Development Institute is the staff college of the bank which provides training in the development mechanism to the personnel’s of Third world countries.

13. Settlement of Disputes:

The bank has provided financial and technical assistance in the normal areas operation. It has made a remarkable achievement in solving the international disputes. For instance, Pakistan disputed in regard to the share of Indus water to India which had been settled with its efforts.

The major offices of the Bank has been established ‘An International Centre for settlement of Investment Disputes (ICSTD)’. Through the principle of conciliation and arbitration, it solves the disputes between the member countries and foreign investors.

The state which has established the convention on the ‘Settlement of Investment Disputes between member nations and foreign investors’ has become responsible to make the privileges of ICSID. Under the said convention, ICSID has been set up.

In addition to this, the bank prepares annual reports for developing member countries. This reports provide valuable guidelines to the lending institutions for coordination of various development schemes.

Things to Know # 8. Successes of the World Bank:

The main points of Fund’s success have been detailed out as under:

(1) Increase in Capital:

The bank has succeeded in enlarging its capital. It has increased its share-capital by about 80 percent. It has also raised its capital by selling securities. Accordingly, bank’s power to advance loans has increased to a greater extent.

(2) Systematic Attention to Various Problems:

World Bank has made a remarkable success in attended to the requirements of both developed and under-developed countries in systematic manner. Of the total loans advanced by the Bank about 70 percent loans have gone to Asia, Africa and other under- developed countries for their economic development.

Besides, the Bank has given huge amount as loans for the reconstruction of developed countries. In 1996, the Bank advanced loans amounting $ 2,135 crore.

(3) Loans for Productive Purposes:

The World Bank gives loans only for productive purposes to its member countries. It provides loans particularly for the development of electricity, power generation, transport etc. The reason being that for the economic development of a country these facilities plays a vital role.

In the absence of these items of infra-structure, there is no possibility of any type of economic development specially in under-developed country.

However, these projects need huge capital investment. Under-developed countries have security of funds. Hence, without the help of the World Bank they cannot go ahead with their programmes of economic development satisfactorily. During 1995-96 the World Bank had given loans of $ 659 crore to underdeveloped countries.

(4) Technical Assistance:

The World bank has provides technical assistance to almost all under-developed countries of the world. Officials of many countries receive training from the institutions set up by the Bank. As a result the planned development of these countries has become possible.

(5) Settlement of Disputes:

The World Bank has got success in settling mutual economic disputes amount nations. Indo-Pak India Basin Water Dispute and dispute between UK and United Arab Republic on the nationalization of Suez Canal and compensation to share holders could be settled only through the mediation of World Bank.

(6) Co-ordination of the Lending Activities:

The World Bank co- ordinates the lending activities of such lender countries as lend to under-developed countries. It convenes their meetings and prompts them to advance loans to different countries of the world. Aid Indi Club is the such example which provides loans for development activities.

(7) Third Window of World:

The loans given by the World Bank and International Development Association (IDA) were sufficient. In order to make up this deficiency both these institutions jointly founded in 1975 a Third Window. This window is a tool in providing loans on a large-scale to developing countries at low rate of interest. The Window has made available loans to many countries like India, Pakistan, Sri Lanka, Ghana, Uganda etc.,

(8) Establishment of Subsidiary Institutions:

World Bank has also established two subsidiary institutions, as under:

(i) International Finance Commission:

It was set up in July 1956. With the objective to encourage private enterprises of member- countries.

(ii) International Development Association:

It was founded in 1960. Its objective is to provide loans to underdeveloped countries at low rate of interest.

(iii) Multinational Investment Guarantee Agency (MIGA):

It was founded in 1988. It aims to encourage private foreign investment.

In a net shell, we can say that the World Bank has made wonderful contribution in the reconstruction and economic development of the member-countries.

Things to Know # 9. Failures of the World Bank:

Significantly, the World Bank has played a crucial role to achieve the objectives of reconstruction and development. But it has also failed on many fronts.

Its failures are as below:

1. Inadequate Financial Aid:

It is alleged that the World Bank is not able to meet the financial needs for the developing countries.

The capital and other financial resources of the World Bank are not sufficient to meet the requirements of the member countries. To increase the funds, the bank established the International Development Association in 1960. But the bank failed to increase the financial resources for the betterment of poor and underdeveloped economies.

2. Discriminatory Treatment:

The World Bank has been criticised for its discriminatory character. The bank creates heavy lending operations for the developed countries which have smaller population and small area. But on the other hand, it provides inadequate funds for the developing countries which have a large population and unexploited resources.

Though the institution is non-political and non-partisan, it has not extended financial assistance strictly on merit and economic considerations.

3. High Interest Rates:

It is argued that the bank charges a very high rate of interest and commission on the loans and borrowings that it gives to its member countries. The bank can reduce or raise the rate of interest on the loans when they are granted by the Govt., of borrowing countries.

But this practice is not followed which is highly unjust and contrary on the provision of the bank charter. The bank is not profit hunting and its main objective is to provide maximum financial help to the needed countries.

4. Insistence on Repaying Capacity:

The bank’s lending process is utilised as it gives more importance on the repaying capacity of the borrowing country before granting loans. The poor hand backward countries are not in a position to get the loans from the bank because they do not satisfy the conditions of repaying loans.

In actual practice, the bank watch the project to be financed out of its loans whether it is productive or not. Only then, question of repaying capacity will automatically be created at the time of its implementation.

5. Difficulties to Underdeveloped Countries:

Another point of criticism is that backward or underdeveloped countries face difficulties to achieve the financial assistance from the bank. The World Bank gives loans only for specific or urgent projects, not for the general development of the country. But in underdeveloped country, it is very difficult to establish the urgency of a particular project.

6. Insistence on Repayment in Foreign Currencies:

Another objectionable feature of the World Bank is that it fails to receive the repayment of loans in the currency in which it gives to the borrowing countries. Therefore, the development countries find it difficult to repay in foreign currencies.

7. Loans for Agriculture and Allied Occupations:

The working of the World Bank has also been criticised on the basis that it gives loan to underdeveloped countries only for agriculture and not for the development of heavy or basic industries.

8. More Consideration of Private Sector:

Still another criticism against World Bank is that it gives more importance to private sector rather to other sectors. But for the development of backward countries, both sectors are complementary and supplementary to each other.

9. Appointment of Officials:

It is also severely alleged that in the case of appointment, special consideration is made in favour of advanced countries and officials from backward countries are totally neglected.

10. Strict Control Over the Expenditure:

Another major drawback is that the bank had excessive control over the expenditure on proposed projects in developing countries which virtually lead to unnecessary interference in the smooth working.

11. Extra Economic Considerations:

It has also been criticised that the World Bank gives more emphasis on extra economic consideration in developing countries rather than to promote lending or borrowing policy.