4.1.4. The World Bank
1. Speak on the World Bank using the answers to the following questions as your plan:
1) What does The World Bank Group consist of?
2) Why do we need a World Bank?
3) What does the World Bank do?
4) Where Does the World Bank Get its Money?
The World Bank
Founded in 1944, the World Bank today consists of five closely associated institutions:
IBRD The International Bank for Reconstruction & Development The IBRD provides loans and development assistance to middle-income countries and creditworthy poorer countries. Voting power is linked to members' capital subscriptions, which in turn are based on each country's relative economic strength. The IBRD obtains most of its funds through the sale of bonds in international capital markets.
IDA The International Development Association IDA plays a key role in supporting the Bank's poverty reduction mission. IDA assistance is focused on the poorest countries, to which it provides interest-free loans and other services. IDA depends on contributions from its wealthier member countries—including some developing countries—for most of its financial resources.
IFC The International Finance Corporation IFC promotes growth in the developing world by financing private sector investments and providing technical assistance and advice to governments and businesses. In partnership with private investors, IFC provides both loan and equity finance for business ventures in developing countries.
MIGA The Multilateral Investment Guarantee Agency MIGA helps encourage foreign investment in developing countries by providing guarantees to foreign investors against loss caused by non-commercial risks. MIGA also provides technical assistance to help countries disseminate information on investment opportunities.
ICSID The International Centre for Settlement of Investment Disputes
ICSID provides facilities for the settlement – by conciliation or arbitration – of investment disputes between foreign investors and their host countries.
The World Bank is a development institution whose goal is to reduce poverty by promoting sustainable economic growth in its client countries. Development is a long-term process which ultimately involves the transformation of whole societies. It is about getting economic and financial policies right. But it is also about empowering the people, building the roads, writing the laws, recognizing the women, educating the girls, eliminating the corruption, protecting the environment, inoculating the children - and much, much more. Development is about putting all the component parts in place - balanced economic and social programs.
The challenge is immense, and this means that everyone involved in the development process - governments, institutions such as the Bank, civil society, and the private sector - must work in close partnership to define the needs and implement the programs.
The global fight against poverty is aimed at ensuring that people everywhere in this world have a chance for a better life for themselves and for their children. Over the past generation, more progress has been made in reducing poverty and raising living standards than during any other period in history. In developing countries:
·Life expectancy has increased from 55 to 65years
·Incomes per person have doubled
·The proportion of children attending school has risen from less than half to more than three quarters
·Infant mortality has been reduced by 50 percent
Despite these successes, massive development challenges remain. Of the 4.7 billion people who live in the 100 countries that are World Bank clients:
3 billion live on less than $2 a day and 1.3 billion on less than $1 a day
40,000 die of preventable diseases every day
130 million never have an opportunity to go to school
1.3 billion do not have clean water to drink
All countries have a stake in meeting these challenges. Raising living standards and promoting growth and development in the world's poorer countries also expands trade, jobs, and incomes in the wealthier countries. Equally, an increase in poverty in developing countries can adversely affect wealthier nations as markets and investment opportunities shrink, the environment is damaged, and people migrate in search of work and income. We live in one world - a world linked by communications and trade, by global finance and a shared environment, and most of all by common aspirations for a better life. The fight against global poverty is - without question - a global responsibility.
The World Bank is the world's largest source of development assistance, providing nearly $30 billion in loans annually to its client countries. The Bank uses its financial resources, its highly trained staff, and its extensive knowledge base to individually help each developing country onto a path of stable, sustainable, and equitable growth. The main focus is on helping the poorest people and the poorest countries, but for all its clients the Bank emphasizes the need for:
Investing in people, particularly through basic health and education
Protecting the environment
Supporting and encouraging private business development
Strengthening the ability of the governments to deliver quality services, efficiently and transparently
Promoting reforms to create a stable macroeconomic environment, conducive to investment and long-term planning
Focusing on social development, inclusion, governance, and institution-building as key elements of poverty reduction
The Bank is also helping countries to strengthen and sustain the fundamental conditions they need to attract and retain private investment. With Bank support - both lending and advice - governments are reforming their overall economies and strengthening banking systems. They are investing in human resources, infrastructure, and environmental protection which enhances the attractiveness and productivity of private investment. Through World Bank guarantees, MIGA's political risk insurance, and in partnership with IFC's equity investments, investors are minimizing their risks and finding the comfort to invest in developing countries and countries undergoing transition to market-based economies.
The World Bank raises money for its development programs by tapping the world's capital markets, and, in the case of the IDA, through contributions from wealthier member governments.
International Bank for Reconstruction and Development, which accounts for about three-fourths of the Bank's annual lending, raises almost all its money in financial markets. One of the world's most prudent and conservatively managed financial institutions, the IBRD sells AAA-rated bonds and other debt securities to pension funds, insurance companies, corporations, other banks, and individuals around the globe. IBRD charges interest to its borrowers at rates which reflect its cost of borrowing. Loans must be repaid in 15 to 20 years; there is a three to five-year grace period before repayment of principal begins.
Less than 5 percent of the IBRD's funds are paid in by countries when they join the Bank. Member governments purchase shares, the number of which is based on their relative economic strength, but pay in only a small portion of the value of those shares. The unpaid balance is "on-call" should the Bank suffer losses so grave that it can no longer pay its creditors - something that has never happened. This guarantee capital can only be used to pay bond holders, not to cover administrative costs or to make loans. The IBRD's rules require that loans outstanding and disbursed may not exceed the combined total of capital and reserves. There has never been a default on a World Bank loan.
International Development Association was established in 1960 to provide concessional assistance to countries that are too poor to borrow at commercial rates. IDA helps to promote growth and reduce poverty in the same ways as does the IBRD but using interest-free loans (which are known as IDA "credits"), technical assistance, and policy advice. IDA credits account for about one-fourth of all Bank lending. Borrowers pay a fee of less than 1 percent of the loan to cover administrative costs. Repayment is required in 35 or 40 years with a 10-year grace period.
Nearly 40 countries contribute to IDA's funding, which is replenished every three years. Donor nations include not only industrial member countries such as France, Germany, Japan, the United Kingdom, and the United States, but also developing countries such as Argentina, Botswana, Brazil, Hungary, Korea, Russia, and Turkey, some of which were once IDA-borrowers themselves.
IDA's funding is managed in the same prudent, conservative, and cautious way as is the IBRD's. Like the IBRD, there has never been a default on an IDA credit.
2. Speak on World Bank programmes using the followig plan:
·Investing in People;
·Protecting the Environment;
·Stimulating Private Sector Growth;
·Promoting Economic Reform;
·Assisting Countries Affected by Conflict;
World Bank programmes
Through its loans, policy advice and technical assistance, the World Bank supports a broad range of programs aimed at reducing poverty and improving living standards in the developing world. Effective poverty reduction strategies and poverty-focused lending are central to achieving these objectives. Bank programs give high priority to sustainable, social and human development and strengthened economic management, with a growing emphasis on inclusion, governance and institution-building.
No country will grow economically and reduce poverty while its people cannot read or write, or while its people struggle with malnourishment and sickness. As we enter the new millennium, hundreds of millions of people lack the minimally acceptable levels of education, health, and nutrition that so many in the industrialized world take for granted. This is not just a moral issue, it is a global economic travesty and a major impediment to the reduction of poverty.
Accordingly, the Bank targets much of its assistance where the impact is greatest - on basic social services such as reproductive and maternal health care, nutrition, early childhood development programs, primary education, and programs that target the rural poor and women. As the single largest investor in social sectors, the Bank has provided loans totaling over $40 billion for more than 500 projects for human development in 100 countries.
The Bank also helps client governments restructure social security and pension systems and establish social safety nets to protect those most at risk from being hurt by the effects of economic restructuring. In addition to lending money, the Bank provides technical assistance and policy advice through services such as in-depth country assessments of poverty, country assistance strategies, and public expenditure reviews, so governments can set sound, long-term strategies for pursuing economic growth.
Poverty reduction is intrinsically linked to environmental and social sustainability. Sustainability means a number of things, but first and foremost it means that resources, including human resources, are enhanced or protected rather than damaged or depleted as part of the development process. Developing countries are, in most instances, much more vulnerable to environmental degradation than industrial countries. Problems such as air and water pollution, climate change, loss of biological diversity, desertification, and deforestation are threatening their ability to meet the basic human needs of their people: adequate food, clean water, safe shelter, and a healthy environment.
The Bank goes to great lengths to ensure that its projects do not harm the natural environment. All projects are screened to determine whether they pose environmental risks. Environmental assessments are undertaken on projects that may be harmful and the Bank includes special measures in such projects to avoid environmental damage. Environmental concerns have been mainstreamed into all Bank activities, because experience has shown that it is more cost effective to prevent environmental damage than to clean it up later.
To enhance these efforts, the Bank works in partnership with other development agencies, NGOs, and community groups to gain the benefit of their knowledge and experience. The Bank works with IUCN, the Nature Conservancy, the World Wildlife Fund, the Worldwide Fund for Nature, and many other organizations to help facilitate programs to protect rivers, forests, and coastal areas. The Bank is also one of the implementing agencies of the Global Environment Facility, the organization which is playing a key role in addressing global environmental priorities such as: biodiversity, climate change, ozone depletion, and pollution of international waters.
The private sector is the engine of long-term growth. A stable and open business climate with access to credit and sound financial systems is essential for private entrepreneurs to emerge, for business to flourish, and for local people and investors from abroad to find the confidence to invest, and create wealth, income, and jobs. The World Bank is helping client governments throughout the developing world create the necessary conditions for the revival and expansion of private sector investment. These include:
·Putting in place the basic laws, regulations, and local institutions that private investors need to ensure clear enforcement of contractural obligations
·Building the physical infrastructure (such as transportation, water, energy, telecommunications, etc.) and developing the critical technological and information base necessary for countries to compete in the global marketplace
·Developing local capital markets and banking systems.
In addition to its loans and technical assistance, the World Bank also offers guarantees to encourage private investment; these guarantees are designed to mitigate investment risks, especially for long-term debt financing. They are particularly important for encouraging private financing of infrastructure - where more than $250 billion a year in investment is needed to meet World Bank client country needs for the next decade. These guarantees are intended to supplement reform programs and complement the risk mitigation benefits offered to the private sector by IFC and MIGA.
Since its inception, the Bank's private sector affiliate, the International Finance Corporation (IFC), has supported some 2,000 companies in 129 countries through more than $21 billion in financing from its own account and $15 billion arranged through syndications and underwriting. The IFC also helps countries establish capital markets and provides advisory services for privatization of state-owned enterprises.
MIGA's political risk guarantees also support private sector growth by giving investors confidence to invest in endeavors that might otherwise look too risky . The agency has insured investments worth almost $5 billion a year in more than 24 client countries. MIGA also serves investors and client countries by providing information about investment opportunities in those countries.
As economic distortions exacerbate poverty, the Bank helps its client governments improve their economic and social policies so as to increase efficiency and transparency, promote stability, and bring about equitable economic growth. The Bank provides funding, policy advice and technical assistance in support of reform efforts to cut budget deficits, reduce inflation, liberalize trade and investment, privatize state-owned enterprises, establish sound financial systems, strengthen judicial systems, and ensure property rights. These reforms help attract foreign private capital, generate domestic savings and investment, and enable governments to provide effective social services. However, because reform measures can lead to unemployment as unproductive enterprises are closed, and to increased prices when inefficient government subsidies are cut, reforms can adversely affect poor and vulnerable people in the short term. To address these concerns, Bank support for reform often includes funding for safety net programs to help protect the poor or to keep vulnerable people from slipping into poverty.
High levels of debt - owed mostly to governments in developed countries - have been increasingly recognized as a severe constraint on the ability of poor countries to undertake fundamental reforms. To help ensure that economic reform efforts are not put at risk by high debt and debt service burdens, in 1996 the Bank and the International Monetary Fund launched the Highly Indebted Poor Countries Initiative (HIPC). The initiative represents a commitment by the international community, including all creditors, to act together in a coordinated and concerted fashion to reduce the debt of very poor countries to sustainable levels. To qualify for HIPC debt relief a country must be eligible for IDA credits, face an unsustainable debt burden, and demonstrate a commitment to economic reform. Debt relief granted under the initiative is based on a country's ability to service its debt in a context of economic growth and poverty reduction. Thus far some ten countries have qualified for debt relief of approximately $8.5 billion.
For governments to be effective, they must have the trust and confidence of the people they serve. Corruption has a devastating economic and social impact. It undermines trust in government and diminishes the effectiveness of public policy. It impedes investor confidence and has a negative impact on foreign investment. Corruption also reduces the effectiveness of aid and threatens both political and grassroots support for donor assistance.
While citizens and governments must themselves lead the fight against corruption, the Bank has been assisting a number of countries with their anti-corruption efforts. The Bank has conducted surveys to diagnose the extent and character of corruption in a given country. It has also organized workshops, courses and training for government officials and members of civil society. But most far-reaching, perhaps, are the efforts the Bank is making to help countries identify and implement the policy and institutional reforms which can minimize opportunities for corruption; these reforms include better financial regulation, supervision and disclosure; greater transparency in public sector decision-making; and greater accountability in the private sector through the confirmation of shareholder and creditor rights.
Conflict and violence are among the world's most pressing development problems, affecting many of the world's poorest countries. The Bank's comparative advantage in this area lies in facilitating the transition from dependence on relief to sustainable economic growth, and improving the coordination of post-conflict reconstruction and recovery assistance. The Bank's post-conflict assistance has focused not only on rebuilding infrastructure, but also on programs to promote economic adjustment and recovery, address social sector needs, and build institutional capacity. Projects are also being designed to assist in demining, demobilization and reintegration of ex-soldiers, and reintegration of displaced populations. The Bank is working around the globe - in places as diverse as the Balkans, Burundi, Cambodia, Sierra Leone, and Haiti - and with a wide range of partners to held rebuild economies and bring stability and a better future to the people whose lives have been affected by conflict.
The World Bank's unique partnership with its client governments, and its role in helping them shape their plans and priorities, equip it to play a strong coordinating role in leveraging funds fordevelopment.
IBRD and IDA loans and credits typically cover less than half of the total investment costs of a project. The remainder is provided by client governments themselves or by cofinanciers. In this fashion, the resources that the Bank raises from bondholders and shareholders are multiplied in both scope and effectiveness.
Cofinancing arrangements with other donors are an extremely effective means not only of mobilizing additional resources, but also of facilitating coordination among development agencies. Cofinanciers include other development banks, the European Union, national aid programs, and export credit agencies. Cofinanciers provide an additional $7 to $8 billion, or another one-third beyond the Bank's own funding, for development each year. The Bank chairs consultative group meetings for many of its client countries, at which officials from donor countries meet with chief policymakers from the borrowing country to discuss overall economic priorities and strategies and to pledge support.
3. Learn the following abbreviations. Give their Ukrainian equivalents.
IBA - Investment Bankers Association;
IBEC - International Bank for Economic Cooperation;
IBRD - International Bank for Reconstruction and Development;
IDF - International Development Foundation;
IIB - International Investment Bank;
WB - World Bank for Reconstruction and Development.