Covering the World Bank

Abid Aslam

I: What it does

The World Bank has many guises: lending institution, development agency, think-tank, forum for intergovernmental politics and economic diplomacy, bureaucracy, and employer of 10,000 people. It lends and guarantees around $20 billion per year in near-market-rate loans and some $6 billion more in no-interest loans to borrowing countries in the developing world and the former Soviet Union. In turn, its loans mobilize financing from governments, commercial banks, and private investors.

Founded in 1944 to lend money to governments seeking to rebuild their economies after World War II, the bank's policies and operations have changed with the global economy and in response to pressure from member governments, activist groups, and some of its own staff.

By the 1960s, it had redefined itself as an institution dedicated to fighting world poverty. Projects such as hydroelectric power plants, ports, and highways once were its stock in trade and saw a revival in the late 1990s and early years of this century as the lender focused once more on borrowers' demand for such infrastructure.

During the 1970s the bank began guiding governments on how to structure and manage the economy and social services, buttressing its advice with loans issued to finance implementation of its policy recommendations. This process, generically called "structural adjustment", has given way to so-called "second-generation" initiatives under which infrastructure, telecommunications, and some social services are privatized; labour, the civil service, and judiciary are revamped; and pension systems are opened to private capital. By the late 1990s, such "policy lending" grew to account for roughly half of the bank's portfolio. (The bank does not generally lend structural adjustment money without approval from the International Monetary Fund (IMF), its sister agency in Washington, DC.)

The economic crisis that began to spread across the globe in 2008 gave rise to intense debates in and outside the bank about the most effective response to falling demand and investment, including in infrastructure. The bank warned that the rich world would be making a mistake if, in its policy responses to the crisis, it ignored the needs of the developing world. It called for a global response to a global problem. In the face of criticism that it had been slow to act, the bank set up a commission consisting of leading economists aimed at making it operate "more dynamically, effectively, efficiently and legitimately".

Through its roles as financier and adviser, the bank has emerged as a coordinator of dialogue between borrower and creditor governments and between local businesses and foreign investors. In a number of countries, it chairs annual meetings of donor groups made up of wealthy governments and international institutions.

Thus, the bank has become a gatekeeper wielding considerable power, although the extent and content of this power vary greatly depending on its own interests, those of its wealthy member states, and the political and financial strength and tenacity of its borrowers.

II: Who controls it

The bank is not a membership organization like the United Nations. It is an international financial institution in which 185 governments hold shares. The size of each country's shareholding, and therefore its vote, is determined by its "subscription capital", or the amount of money it pledged to become a shareholder.

Wealthy nations, or "Part I" countries, comprise 14 percent of the bank's shareholders and control more than 62 percent of the votes. Borrowing, or "Part II", countries represent 86 percent of the shareholders and 38 percent of the votes. The U.S. government, the largest single shareholder, traditionally has chosen the bank's president but officials have said its next leader need not be a U.S. citizen. Even before the global economic crisis there was some debate about increasing the voting rights of developing countries, not least China and India, in both the World Bank and the IMF. This debate intensified as the crisis spread, with the so-called Group of 20 leading developed and developing nations forming a focal point for discussion of the issue.

Most of the money the bank lends comes from selling bonds on international capital markets. Subscription capital is used as collateral to guarantee the bonds, which the bank offers to government and institutional investors on attractive terms. The money it takes from these investors, it lends to borrowing countries at a higher interest rate. Borrowing countries service their loans, enabling the bank to pay off the investors and plough the difference into operations and reserves.

Representatives of the bank's shareholders oversee all this. A Board of Governors – made up of finance, development or planning ministers from all shareholding countries – meets every year to review and set broad policies and priorities. The Governors are ultimately responsible for the World Bank.

Operational control rests with a 24-member Board of Executive Directors, or EDs. The board meets in full session once or twice a week to approve all loans. Smaller committees meet almost daily.

The bank's largest shareholders have their own, exclusive ED. Smaller shareholders organize themselves into groups and rotate the right to represent the bloc, usually every two years. Thus, 47 African countries share two EDs.

EDs represent shareholding governments but they also are full-time employees of the bank, which pays their salaries and provides them with offices and secretaries. The bank's president chairs the board's meetings.

In comparison, the executive boards of United Nations agencies meet between once and four times per year and their members are not paid by the agencies they oversee.

Borrowing countries' voices often are stifled by the formula of representation based on shareholding, and by executive directors' dependence on the bank for their salaries and office facilities.

Furthermore, EDs are seldom assertive in opposing bank plans for fear of being overturned, circumvented, or replaced. Typically senior civil servants, they rank lower at home than the cabinet ministers who serve as the bank's governors and with whom senior bank managers are frequently in touch. What's more, the bank's president and top executives enjoy direct access to borrowing countries' presidents and prime ministers.

Nevertheless, some EDs from larger borrowers – China or India, for example – have been known to push through loans for projects in their home countries over environmental or other objections from Part I EDs.

EDs from relatively well-off borrowing countries that do not qualify for 'soft' loans have been at odds with those from poorer ones that do qualify, over whether the bank should concentrate on meeting the formers' needs by operating as a lending cooperative or whether it should aid the latter by increasing its 'soft' loans and forgiving debt.

Legislators and government commissions in Part I countries also weigh in on these and other existential questions from time to time, often in response to lobbying by corporations, environmentalists, and other pressure groups.

III: Its structure

Often, when we say "the World Bank" we mean the International Bank for Reconstruction and Development, or IBRD. Established in 1945, this is the core of the World Bank Group. It disburses loans at or near prevailing market interest rates and with maturities of 15-20 years.

The International Development Association, or IDA, created in 1960, makes "soft loans" to the bank's poorest members. These loans, called "credits", are interest-free (although they carry an administrative surcharge of 0.75 percent) and repayable over 35-40 years with a 10-year grace period. Essentially, IDA is a pool of money; it is physically indistinguishable from the IBRD and is often described as the bank's "soft loan window".

Unlike the IBRD, IDA must be replenished every three years. In some countries, parliaments must authorize the funding. In the U.S. Congress, pressure groups often lobby for the money to be tied to demands that the bank change some aspect of its work.

3. The International Finance Corporation, or IFC, was set up in 1956 to promote private investment – including its own – in businesses based in the bank's borrowing countries. Membership is limited to bank shareholders.

4. The Multilateral Investment Guarantee Agency, or MIGA, was created in 1988 to provide political risk insurance to foreign companies making direct investments in the bank's borrowing countries. It provides coverage against government restrictions on investors' ability to transfer currency; nationalization; war or civil disturbance; and breach of contract. Only bank shareholders can join.

5. The World Bank Institute arranges training for professionals in borrowing countries and on the bank's staff. Much of its staff has traditionally consisted of bank officials approaching retirement although it also uses consultants. It publishes research used by the bank and its clients. It can be a useful source of information on such bank-sponsored activities as the training of civil servants and journalists in borrowing countries and is a window on bank-sponsored research. However, the more influential research centers at the bank are the office of the chief economist and the research department, which has a Web site that often shows where bank thinking is heading (see links below).

The bank also houses the International Centre for Settlement of Investment Disputes, or ICSID, a legally autonomous international organization established in 1966 to arbitrate disputes between foreign investors and host governments. (See separate primer on this website: International Investment Agreements.)

Also based at the World Bank are specialized consortia of donor governments, funding agencies, and research institutes. The Bank plays an influential role in them but, strictly speaking, is not in charge of them. These include the Consultative Group on International Agricultural Research, or CGIAR, and the Consultative Group to Assist the Poorest, CGAP, which specializes in micro-credit and micro-enterprise programs. (See separate primer on this website: Microlending.)

IV: Sources of information within the bureaucracy

All World Bank Group institutions have media liaison staff, as do most units within the IBRD. Some interesting sources of information and story ideas remain obscure, however. These include:

(i) The IBRD's Operations Evaluation Department, or OED. This unit conducts post-mortems of bank programs and projects. It issues findings and recommendations for changes in policy, strategy, and operations to the executive board. Reporters often seek out its draft reports.

(ii) The bank's Inspection Panel. A good source of stories about projects gone wrong and efforts to put them right, this quasi-independent body investigates allegations that bank policies (say, on environmental safeguards) have been violated in ongoing or planned projects. Operating under legal constraints and immense political scrutiny from governments and the bank, the panel is extremely careful not to leak information. Its reports are made public, however, and advocacy groups tend to have foreknowledge of cases.

(iii) The Fraud and Corruption Unit. Made up of former prosecutors the unit probes allegations against staff members and companies that do business with the bank.

(iv) Committees of the IBRD's executive board. Perhaps the most significant of these is the Committee on Development Effectiveness, or CODE. This group handles OED reports and all other issues relating to bank operations, strategy and evaluation.

(v) Top-level bank managers. As a group, they make recommendations to the board through their own lobby group, the Operational Policy Committee, or OPC.

(vi) The Operations Policy and Country Services department, or OPCS. Charged with ensuring that policy and strategy changes are implemented, this is one of the most powerful units within the bank.

V: Who does what

Broadly, bank staff are organized in four "networks", each with a name that sufficiently describes its work: Environmentally and Socially Sustainable Development; Finance, Private Sector and Infrastructure; Human Development; and Poverty Reduction and Economic Management.

Headquarters staff assigned to these networks tend to be knowledgeable about issues – say, business regulation, education, or water resources management – and how the bank addresses them in terms of policy. Many also have experience of specific countries because of time spent in a Country Department.

The Country Department is the unit charged with translating policy into action through the Country Assistance Strategy, a document sometimes referred to as the bank's "master plan" for each borrower.

A Country Department can be located at bank headquarters in Washington or in the borrowing country. Headed by a Country Director, each department includes economists, staff who liaise with non-governmental organizations and the media, and project staff led by managers known as Task Team Leaders. Reporters wishing to track specific projects should cultivate these officials as sources.

VI: Getting information about projects

In addition to cultivated sources, reporters covering specific projects should seek out a number of documents. Some of these will be available from the bank's Infoshop in Washington, through its country departments, or on the bank's Web site (see below). But in some cases reporters will have to obtain documents from government sources, advocacy groups, or civic leaders in project areas. These documents include:

(i) The Project Information Document, which summarizes a proposed project.

(ii) Factual Technical Documents, in which consultants study a project's economic, technical, and other facets.

(iii) Project Appraisal Documents, which assess project viability and are prepared for the bank's executive directors.

Once a project is approved, the bank usually issues a press release. After approval, it produces internal project supervision and monitoring reports. At the end of project work, the bank or its borrowing government prepare a confidential Implementation Completion Report and submit this to the executive board. The bank's Operations Evaluation Department also prepares a Project Audit Report.

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