History of the World Bank

The WB was created by the Bretton Woods Conference and evolved by adding additional institutions as additional tasks were identified. The initial objective of the WB was to provide loans for the rebuilding of Europe after WWII, later lending is provided to developing countries to foster development. Membership in the IMF is a prerequisite to be member of the WB and the source of the funds it provides are membership subscription quotas, international capital market borrowing (bonds), repayment of loans and retained earnings.

The institutions that form the WB group today are: 1. IBRD (International Bank for Reconstruction and Development), 2. EDI (Economic Development Institute), 3. IFC (International Finance Corporation), 4. IDA (International Development Association), 5.

MIGA (Multilateral Investment Guarantee Agency) and 6. ICSID (International Center for Settlement of Investment Disputes).
The IBRD was created in 1946 for two purposes: the reconstruction of Europe after WWII and for investment in the developing world. The initial priority (reconstruction of Europe), ends in 1955 and all lending to Europe ends in 1967 and doesnt resume until 1989 with assistance to Central and eastern Europe. Investment in the developing world is done by lending for projects unable to attract private financing, neoliberal philosophy is followed to decide what is considered economic development.

The IBRD is the largest source of development assistance.
The IBRD is an official or sovereign lender and operates as a bank, not an aid-giving agency, It is very conservatively managed and it has a very profitable operation. Before extending a loan, a very rigorous economic and financial analysis of the proposed project is done so that a targeted ROI of 10% is met. The actual average ROI of the IBRD is about 20% although nearly 2 out of each 5 projects fails the 10% ROI.

One of the concerns for the IBRD is that the average ROI is falling. THE IBRD has outstanding loans totaling more than 104 billion dollars.
The Economic Development Institute was established in 1955 to train government officials from the developing world in economic and financial management. The EDI promotes neoliberal economic perspective and development philosophies , The EDI is known as the Banks college and was initially set up with financial support form the Ford and Rockefeller Foundations.
The International Finance Corporation was established in 1956 as an affiliate of the bank with an authorized capital of $100 million. It is a separate legal entity with its own staff, membership and resources.

Raises about 80% of its funds from international capital markets and receives balance in the form of transfers from the IBRD, This institution loans only to the private sector in developing countries and plays the role of a catalyst for more investment from other sources. Lending from the IFC has been expanding rapidly in recent years in part to the opening of Eastern Europe.
The International Development Association was established in 1960 to assist the worlds poorest countries. It has separate membership, but not separate organization like the IFC. It has no dedicated staff or resources so it is considered a "lending window" of the IBRD. This institution makes soft loans to countries with per capital income of less than $805.

It has outstanding loans of $455bn and most of the funds are provided by wealthy members subscriptions, no money is obtained in capital markets.
The Multilateral Investment Guarantee Agency was established in 1988 to promote foreign investors in the developing world by insuring them against political risk. This institution will guarantee up to 90% of the invested amount up to a maximum of $90 million.
The International Center for Settlement of Investment Disputes was established in 1966 and provides arbitration services in investment disputes which arise between foreign investors and host country governments. It provides advice to developing countries governments on the drafting of foreign investment laws and regulations.
All of the World Banks projects go through an established cycle: 1.

Identification, 2. Preliminary Study, 3. Project Implementation, 4. Training, Start Up and Supervision and 4. Evaluation. This is done to make sure that all aspects before, during and after aid is given, are well analyzed so errors can be kept to the minimum.

Three phases in WB lending philosophy have been identified:
The first one is called "Project Lending". This philosophy began in 1946 and ended in 1968. During this time, emphasis on building economic infrastructure was given. This is shown by the fact that up to 70% of all lending was destined to infrastructure projects.

The state role during this time was to create an environment favorable to business and to position the country for "take-off". This philosophy is based on WW Rostows Five Stages View. In general, this philosophy had only partial results because no spill over effect from the projects to the countrys economy.
The second phase is known as "Program Lending". This policy was associated with Robert McNamara, WB President from 1968 to 1981.

McNamara was mainly oriented towards the basic human needs so the programs of the WB were targeted at those people living in absolute poverty. The state role during this period was to provide welfare. In order to measure the quality of life in developing countries, the Improvement in Physical Quality of Life Index (PQLI) was used.
Robert McNamara reoriented lending, greatly increased the speed and volume of lending, internationalized the staff of the bank and greatly expanded the banks research capabilities and reputation as an authority on development issues.
The third phase is known as "Policy Lending". It supports the neoliberal model of development.

As response the debt crisis the SALS (Structural Adjustment Loans) and SECALS (Sectoral Adjustment Loans) were implemented. The state role was reduced through privatization and austerity measures had a great impact on the poor.
The WB faces a new era in our days. The new bank President, James Wolfensohn is expected to remake the bank, so it is considered that the fourth era in bank lending will start with him.

Under Wolfensohn, the WB is still commuted to big projects, but now it is willing to cancel bad ones. Wolfensohn is looking for new ways to strengthen their business regulating and financial systems to better control projects. He also will try to increase private investment involvement in projects. Bew concepts like sustainable development will be added to the WB agenda. The most important project that James Wolfensohn has implemented is the "Heavily Indebted poor Countries Initiative" (HIPC). This new policy was announced by the WB President and the IMF Managing Director on September 30, 1996 in the Development Committee Meeting held in Washington.

The HIPC Initiative enables poor countries with good policy performance to escape from unsustainable debt, and focus all their energies on striving for sustainable development and reducing poverty. This initiative is based on the premise that the only way out of problems for poor countries is having sustainable debt for sustainable development.
Personally I think that James Wolfensohn will change the World Bank. His environmental awareness, as well as his strong background as a policy maker in the area of sustainable development is exactly what the WB needs to change its course and respond to new demands from the developing world. His new policies will also satisfy organizations concerned with the WB not contributing to environmental safe projects, and will give the poor countries new hope to develop.
Category: English