WORLD BANK (Encyclopedia)


The World Bank or International Bank for Reconstruction and Development (IBRD) was established in 1944 after the Bretton Woods Conference to become, with the International Monetary Fund (IMF), one of the international financial institutions of the new economic structure born after the Second World War. Commonly refers to the WB also with the term World Bank Group. Initially the WB objectives were the reconstruction of war-torn countries and thereafter the economic development and assistance to developing countries through the financing of specific projects. The Bank has therefore focused its efforts on issues such as international financial assistance, social capital development, good governance, private sector growth, financing national budget of developing countries.

The decision to establish two institutions with different, but somehow complementary, mandates was taken during the monetary and financial Conference of Bretton Woods (1944). The objective of the Conference was to reorganise the international monetary system towards a new monetary cooperation, which would foster world trade and economic growth. Under these circumstances, the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), core of the present World Bank group, were founded in 1944. The IBRD was in charge of conceding long-term loans directed to the reconstruction of the countries damaged by the Second World War and to the development of the member states. Within a changing economic, political and social context, the Bank began its transformation and became the main international organisation in support of development and poverty reduction. In 1960, the Bank was integrated by the International Development Association (IDA), which was established to promote economic development, enhance productivity and improve living conditions in less developed countries.
The IBRD’s activity officially started in June 1946 with the objective of restoring the world economies of the post-war era, as indicated by Art.1 of the Article of Agreements. However, the amount of resources required to achieve this objective turned out to be higher than expected. For this reason, in 1947, the United States decided to start a financial aid plan in favour of the European countries (European Recovery Program – ERP, better known as Marshall Plan) aimed at rebuilding the capitalistic structure of their economies. The European countries were invited to present a detailed program including the common requirements aimed at achieving the reconstruction. This program was used as the starting point of the Paris Conference of March-April 1948 during which the Organisation for Economic European Cooperation (OEEC) was established. The OEEC’s objective was to realise the reconstruction of Europe through a better use of the American funds. This circumstance led the IBRD to progressively abandon its role in the reconstruction process and focus on the activity of expanding productive capacities and improving the living conditions of the developing economies.
In order to exercise its mandate, the Bank encourages foreign private investments by means of guarantees or by participating in loans and other private investments. Furthermore, the Bank can promote international trade, having the latter a direct positive impact on the development of productive resources, on the level of productivity and on the living conditions in the member states.
Loans and guarantees are supplied only for the realisation of the most useful and urgent international projects, regardless of their dimension. Finally, the Organisation had to support the transition from a war towards a peace economy. In particular, Art.1 of the IBRD Articles of Agreement states the following:

The purposes of the Bank are:

(i) To assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes, including the restoration of economies destroyed or disrupted by war, the reconversion of productive facilities to peacetime needs and the encouragement of the development of productive facilities and resources in less developed countries.
(ii) To promote private foreign investment by means of guarantees or participations in loans and other investments made by private investors; and when private capital is not available on reasonable terms, to supplement private investment by providing, on suitable conditions, finance for productive purposes out of its own capital, funds raised by it and its other resources.
(iii) To promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment for the development of the productive resources of members, thereby assisting in raising productivity, the standard of living and conditions of labor in their territories.
(iv) To arrange the loans made or guaranteed by it in relation to international loans through other channels so that the more useful and urgent projects, large and small alike, will be dealt with first.
(v) To conduct its operations with due regard to the effect of international investment on business conditions in the territories of members and, in the immediate postwar years, to assist in bringing about a smooth transition from a wartime to a peacetime economy.

The Bank shall be guided in all its decisions by the purposes set forth above."

1. Projects financed by the WB

The IBRD’s activity initially focused on the realisation of development projects in the fields of infrastructure, energy and transportation, without paying too much attention to other sectors such as health, education and access to water resources. Thus, the Organisation had the main objective of filling the existing gap between the more industrialised economies and the developing ones by financing those projects in the public utilities sector which were considered as investments with a deferred productivity and scarcely attractive for private investors. Later on, the funding of these types of project was integrated by the offer of technical assistance in the design and implementation phases. Nevertheless, in order to achieve full development and a better performance of the developing economies, the support to the private sector soon became as important as public intervention. This circumstance led to the creation of a new institution, complementary to the IBRD, which could enhance private investments in different sectors. The International Finance Corporation (IFC)1 was therefore established in 1956 with the specific objective of promoting the diffusion of private productive firms in the less developed areas of the member countries. The Bank’s interest in offering financial resources always concerned the general performance of the beneficiary country more than the result of the specific project. In particular, this last aspect better emerged after the transformation of the Organisation into a "development agency", which reflected into a greater attention of the Bank to the social and cultural impact of financial investments, more than just their economic output.
Today, the World Bank plays an active role in all the phases of the project cycle, from the identification of the intervention to the fundraising, implementation and ex-post evaluation of the project.

2. The World Bank Group

The World Bank (WB) includes the International Bank for Reconstruction and Development and the International Development Agency. These institutions play very different roles but are both oriented towards the achievement of a global and sustainable development. The WB cannot be properly considered a bank given its complex structure made of international development institutions and other agencies, such as the International Centre for Settlement of Investment Disputes (ICSID), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).
The International Bank for Reconstruction and Development (IBRD) gives credit to less developed countries to realise public and private investments, and finances its activity by selling AAA shares on the financial market. The Bank’s capital is made of shares reflecting the economic power of the 186 member states and, to a larger extent, of foreign public and private funds.
Since 1960, the International Development Association (IDA) works together with the IBRD in fighting poverty. The Association, which includes 169 member states2, gives interest-free credits to countries with a per-capita annual income lower than a fixed threshold level3, by offering more favorable conditions than the Bank. All the projects funded by the Association deal with economic growth and inequality reduction. Although being legally and financially separated, the IDA and the IBDR are both placed in Washington D.C. in the United States, work through the same agents and evaluate projects and programs according to the same criteria. In particular, the IDA offers financial assistance to more than 70 developing countries worldwide, 39 of which in Africa, by giving interest-free credits to be reimbursed within 40 years and with possible further extensions up to 10 years. Since the beginning of its activity, the Association gave credits for an amount of 193 billions dollars, about 10 billions per year, of which 50% in the African region.
The International Finance Corporation (IFC) was established in 1956 with the objective of fighting poverty and improving population’s life conditions by financing those agents lacking of any governmental warranty. The Corporation includes 181 shareholder countries4, which are also IBRD’s members, and takes the form of both a multilateral development bank and an investment bank. The IFC has the main objectives of providing access to credit to firms operating in regions that are typically excluded from the private capital market, giving long-term credits and offering risk management and technical assistance products. The Corporation gives credits for sums not exceeding 25% of the total cost of the project and for an amount up to 100 million dollar. These credits are mainly directed to encourage the activities of small and medium firms, privatise governmental companies and support private investments in infrastructures, tourism, health and education.
The International Centre for Settlement of Investment Disputes (ICSID) was founded in 1966 with the "Convention on the Settlement of Investment Disputes between States and Nationals of Other States" and includes 144 member states. The main objective of this independent institution is to remove obstacles to the international flow of private investments, caused by the existence of non-commercial risks and the absence of specific conflict resolution mechanisms.
The Multilateral Investment Guarantee Agency (MIGA) was established in 1988 with the objective of promoting foreign private investments in developing countries by offering insurance services and legal assistance. In particular, the Agency gives guarantees to foreign investors against non-commercial risks such as transferring restrictions, expropriations and breaches of contracts. These guarantees are offered only to member states to finance projects in developing countries, which must be members as well. The maximum coverage of warranty is 90% for stock investments and 95% for debts with 15-year duration. In some cases, the latter can be extended up to 20 years and the investors have always the option of extinguishing it after 3 years.

3. Organisational structure

A country is a member of the World Bank for the fact of having subscribed its capital shares, thus becoming a shareholder of the institution. Each state is represented inside the Board of Governors, which holds the decisional power concerning the definition of strategies, the admission and suspension of member countries and the variation of capital. The Board is made of a Governor and his/her substitute, the Alternate Governor, both appointed by the member states5, and it meets every year.
In case one of the countries is both a member of the Bank and of the IFC and IDA, the Governor and his/her Alternate belong ex-officio to the Board of Governors of these agencies6. The most urgent issues are delegated to the decision of the Board of Directors, made of 24 Executive Directors, 5 of which are appointed by the Bank’s major shareholders: France, Germany, Japan, the United Kingdom and the United States. The Executive Directors meet twice a week to approve loans, guarantees and the administrative account, and to define financial and assistance strategies in favour of specific countries.
The World Bank’s President, at present Robert B. Zoellick, is appointed by the Board of Governors every 5 years. He is responsible for the whole institution’s management and he chairs the meeting of the Board of Directors. This position has always been held by a United States citizen, being this country the major shareholder of the Bank.

The World Bank organizational structure is also composed by Inspection Panel, an independent body that monitors compliance with mandate and policies of the Bank through the activation of investigations for violations of internal procedures in the execution of projects.

1The International Finance Association is part of the World Bank group, together with the International Development Association (IDA), established in 1960, the International Centre for Settlement of Investment Disputes (ICSID), established in 1966, and the Multilateral Investment Guarantee Agency (MIGA), established in 1988.
2Number updated to July 2009. According to what established by the "Articles of Agreement", to become a member of the IBRD, a country must already be an IMF’s member. Furthermore, in order to join the IDA, IFA and MIGA, the country must already be an IBRD’s member.
3The IDA fixes the per-capita income threshold level every year. In the fiscal year 2008 (from 1 July 2007 to 30 June 2008), it was equal to 1,065 USD and then increased up to 1,095 USD in 2009.
4Number updated to 2009. To become member of the IFC, a country must obey the following:
- being an IBRD’s member;
- having accepted and signed the IFC’s "Articles of Agreement";
- having left the acceptance act of the IFC’s "Articles of Agreement" at the World Bank group’s secretariat.
The Conference’s member countries decide about the IFC’s policy and approve the amount of resources offered in the form of loans and services to finance projects.
5These positions are generally held either by the Minister of Finance or by the Central Bank Governor of one of the member states for a 5-year period.
6As to the MIGA, the Governor and his/her Alternate of each member state are appointed and act separately.


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Gavin M., Rodrik D., The World Bank in Historical Perspective, The America Economic Review, vol. 85, 1995.
Kapur D., Lewis J.P., Webb R., The World Bank. Its first Half Century, Vol. I, History, Vol. II, Perspectives, Brookings Institutions Press, 1997.
You J.Il., The Bretton Woods Institutions: Evolution, Reform and Change, D. Nayyar (ed.), Governing Globalization. Issues and Institutions, Oxford University Press, 2002.
Editor: Federica ALFANI