World Bank History

The emergence

The World Bank lends money and provides technical support to developing countries, with the aim of helping them reduce poverty. According to computergees, the World Bank is a collective name for two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).

The guidelines for the IBRD were drawn up at the Bretton Woods Conference in July 1944. The main purpose of the new organization was to work for the reconstruction of Europe and Japan after the Second World War.

But the IBRD was soon overshadowed in the work of rebuilding Europe – it was taken over by the United States, through the so-called Marshall Aid, and the OEEC (Organization for European Economic Cooperation, the forerunner of today’s OECD). With two smaller loans to Chile in 1948, the IBRD began to orient its operations away from Europe.

During the 1950’s, it became apparent that many poor countries needed loans with milder terms than those offered by the IBRD. Therefore, the International Development Fund (IDA) was established in 1960, as a complement to the IBRD. IDA was given the task of giving credit to the poorest countries.

Until the end of the 1960’s, lending activities within the World Bank were relatively limited. Both IBRD and IDA mainly funded projects to build countries’ infrastructure, such as roads and energy production. In order for a loan to be granted, the projects must have the conditions to contribute to the economic development in the country.

In 1968, when the former US Secretary of Defense Robert McNamara became head of the World Bank, a strong expansion of the business began. During McNamara’s 13 years as World Bank Governor, lending increased fivefold. The targets for lending changed radically. The IBRD now also aimed to combat poverty in the third world. This was particularly evident in the rapidly growing lending for agricultural development.

When the World Bank got a new head in 1981, AW Clausen, who was generally considered more conservative than McNamara, IBRD’s lending to poor countries with weak economies became more restrictive, as it was considered risky. The United States and other major developed countries opposed an increase in IBRD general lending but accepted that the poorest countries received more aid through the IDA. With the emerging debt crisis of the 1980’s, debt restructuring became an increasingly important task for the World Bank, as well as for the International Monetary Fund (IMF).

In order to provide new loans to the countries affected by the debt crisis, both organizations set increasingly strict loan terms with requirements for comprehensive structural adjustment programs. These aimed at long-term changes in a country’s economic policy with the aim of creating stable and lasting growth. These were measures such as deregulation, reduced government spending and export orientation.

Through the new far-reaching loan terms, the roles of the World Bank and the IMF coincided in part. Towards the end of the 1980’s, an increased focus was placed on poverty reduction and on more “soft” sectors, such as education and health care.

At the same time, criticism of structural adjustment programs grew. An internal investigation in 1992 showed that more and more of the projects financed by the World Bank in the 1980’s had failed. By the end of the 1980’s, more than a third of the projects had not been successfully implemented, despite the strict demands for economic reforms. The worst situation was for the countries in Africa and for projects in the social sector, ie precisely those projects that were important in the fight against poverty.

When James Wolfensohn took over as head of the World Bank in 1995, he focused on corruption as a problem in development finance. A series of comprehensive reform packages was launched to try to improve the World Bank’s work to become more results-oriented and to focus on the fight against poverty. A first step was to address the debt problem. In 1996, the World Bank and the IMF launched the joint HIPC debt relief initiative for the poorest countries.

The HIPC initiative (Heavily Indebted Poor Countries) aimed to reduce the debt burden of the poorest countries to a more sustainable level. According to one definition, a sustainable debt corresponds to a maximum of 150 percent of a country’s annual export earnings. However, debt relief under the HIPC was also accompanied by demands for a series of economic reforms, which were largely similar to the previous structural adjustment programs.

Both the World Bank and the IMF also joined the so-called Millennium Development Goals, a series of steps aimed at halving world poverty by 2015. In early 2004, the two organizations jointly published an annual report, the Global Monitoring Report, on the Millennium Development Goals. in the countries concerned.

In an extension of the HIPC, the World Bank and the IMF decided in 2005 to completely write off the debts of the HIPC countries that have met the set conditions. The Multilateral Debt Relief Initiative (MDRI), launched at the initiative of the rich G8 countries, was launched in 2006.

Ten years later, 36 countries, 30 of them in Africa, had approved debt relief programs worth more than $ 75 billion. MDRI covers loans from the World Bank, the IMF and the African Development Fund.

When US President George W Bush appointed his Deputy Secretary of Defense Paul Wolfowitz as the new head of the World Bank in 2005, it drew criticism both within the bank and abroad. Wolfowitz, known as one of the main architects behind the US invasion of Iraq in 2003, was considered to have a lack of experience in development issues and multilateral work. He was also accused of working with a small group of employees he brought with him from the White House, without involving the bank in general. The critics who said that the bank often appears to be an offshoot of the US government got water on their mill.

Wolfowitz made the continued fight against corruption one of his main goals. A stricter strategy for combating corruption was drawn up. He decided on his own to suspend loan payments of multi-million sums to, among others, India, Kenya, Congo, Ethiopia and Bangladesh, with reference to corruption. Many felt that the decisions on which loans to stop were made arbitrarily and that the strategy risked undermining confidence in the bank in many poor countries. In March 2007, the Executive Board ruled that decisions on suspended loans must be anchored with the Board.

Just two months later, Wolfowitz was forced to resign from his post, following allegations that he improperly favored his girlfriend when she was transferred from the World Bank to the US State Department upon his accession, and received a juicy pay rise along the way. Accusations of irregularities also occurred during appointments within the bank.

Former US Federal Reserve Chairman Robert Zoellick has been named the new World Bank Governor.

In 2007, a new strategy was formulated to specifically support so-called failing states, which need to be rebuilt after conflicts. The climate issue, and the need for sustainable energy, were also put in focus.

In the spring of 2008, sharply rising world food prices led to an appeal by the World Bank for emergency donations from donor countries. The food crisis was exacerbated by extremely high fuel prices. Riots broke out in several places and the bank warned that poverty reduction could be eliminated, with widespread famine as a result. Criticism was directed, among other things, at the fact that agricultural land was increasingly used for the production of biofuels. According to World Bank estimates, the number of poor, those living on less than two dollars a day, increased by up to 150 million people in 2008 due to food and fuel prices.

Nevertheless, the food crisis was increasingly overshadowed by the global financial crisis, the deepest since the depression of the 1930’s. The crisis that began in the United States and the rest of the industrial world soon had repercussions in emerging economies and in poor countries. In early 2009, Zoellick appealed to the developed countries to earmark 0.7 percent of their economic stimulus packages for a special “vulnerability fund” for the most vulnerable countries.

Zoellick was succeeded as head of the World Bank in 2012 by Korean-American doctor Jim Yong Kim.

World Bank History