Development organizations Part 1 – The World Bank

Key difference between the IMF and the World Bank

• IMF:– Exchange rate stability– Monetary policy– Mission creep development– Loans are large for macro-targets ($100s millions-

billions)

• World Bank– Development– Smaller loans ($10s millions-$100 millions)– Specific projects (dam, schools, oil pipeline)– Multiple projects in one country (big countries may

have several project loans, e.g., India >10)

The World Bank• The primary international institution responsible for

promoting economic development in the world.

• Sponsors projects of various scopes in both emerging market countries as well as the world’s poorest countries

• In 2006 alone the World Bank provided $23.6 billion in loans and grants through 279 projects around the globe.

• Critics (e.g. Easterly 2005) allege that the World Bank has fallen far short of its goals of improving living standards and reducing poverty.

• Many argue that failure is due to the imposition of misguided policy conditions through the development projects.

Some reasons the 2 institutions often get confused

• Like the IMF, World Bank uses conditionality with many (but not all) loans

• Often, the World Bank requires an IMF program be in good standing!– So the conditionality may run through the IMF

• Both institutions founded in 1944 @ BW, NH

• Both have a similar governance structure

• Head of the IMF (“Managing Director”) always a Europea; Head of the World Bank (“President”) always American

• In what way is the World Bank incorporated into the United Nations system?

• UN had expected IMF and World Bank to report to it, but leaders of the institutions had no intention to do that.

• Wanted financial autonomy.

• In 1947 they became specialized agencies of the UN. They report to Economic and Social Council (ECOSOC) & participate in many UN meetings

• WB is not beholden to the UN for approval of its policies and actions and above all for financial support. Governance structure gives WB and IMF a special status within the UN system

• Do political considerations play a part in who the Bank lends to?

• http://web.worldbank.org/WBSITE/EXTERNAL/EXTSITETOOLS/0,,contentMDK:20264002~menuPK:534379~pagePK:98400~piPK:98424~theSitePK:95474,00.html#7

• Officially, how does the World Bank interfere with the political affairs of its members/clients?

• How does this influence its lending decisions?

• “Governance”

Average # of World Bank projects by UNSC membership

0.0

0.5

1.0

1.5

2.0

2.5

avg=1.29

std=1.95

avg=2.13

std=2.93

avg=1.28 avg=1.30

std=1.96 std=1.93

avg=2.15 avg=2.10

std=2.96 std=2.92

avg=2.06 avg=2.19

std=2.75 std=3.11

n=176 n=181

Non-

n=5333 n=357

member Member

Total sample

avg=1.29

std=1.95

n=5333

Non-member

1st.yearmember

2nd yearmember

Over time

n=2638 n=183 n=2695 n=174

Non-member

Member Non-member

Member

During the cold war After the cold war

If politics mattered during the Cold War, but not after,this bar should be above the line,and this one should be at/below the line…

What is the "World Bank“as opposed to the "World Bank Group"?

• IBRD (often called “the World Bank”)

• IDA – created in 1960 – concessional financing

• IFC – lends to private companies for private sector projects

• IBRD & IDA are tightly connected – work as a single unit (though the terms of their loans are quite different)

• IFC – has its own building, own executive vice pres. & staff (more “entrepreneurial”)

• MIGA – provides insurance to private companies against political risk

• ICSID – International Center for the Settlement of Investment Disputes

Membership

• IBRD: 186 countries

• IDA: 169 countries – Who are the 17 countries in IBRD but not

169? http://web.worldbank.org/ (“about” “members”)

– Excel file

• MIGA: 174 countries

• IFC: 182

Voting

• IBRD: http://siteresources.worldbank.org/BODINT/Resources/278027-1215524804501/IBRDCountryVotingTable.pdf

• IDA: http://siteresources.worldbank.org/BODINT/Resources/278027-1215524804501/IDACountryVotingTable.pdf

• Where does the IBRD get most of its funding to lend to developing countries?– Private markets

• Where does IDA get most of its funding?– Returns (interest) from IBRD loans, donor

contributions

• When was the International Finance Corporation (IFC) started and WHY?

• 1956: Bank was unable to lend directly to private companies, buy equity in them or help manage them.

• Yet the fundamental idea was that the World Bank should play a catalytic role vis a vis the private sector.

• IFC became the mechanism to support private investment, and through the negotiations on its own Articles of Agreement.

• Does IFC serve a role for which there is no market?

• It looks for high conflict areas and high risk – inherently risky investment – companies would not invest there without IFC’s advice to do so.

• When was the Multilateral Investment Guarantee Agency (MIGA) started and WHY?

• 1988. Designed to insure private investors against political risk and provide technical assistance and dispute mediation involving governments and private investors.

• Does it serve a role for which there is no market?

• To which countries to the WB extend its first extend loans?– France – 250 mi; Netherlands – 195 mi,

Denmark – 40 mi, Luxembourg – 12 mi.

• Which were the first developed/developing countries?– Mexico and Brazil

What are the 6 types of countries that the WB works with?

1) Creditworthy borrowers from the IBRD

• Middle-income countries.

• Per capita incomes in this group are below the IBRD graduation threshold (~$6000 per cap)

• But too high for the countries to be eligible for credits or grants from the IDA (~$1000 per cap)

• Some of these countries elect not to borrow from IBRD but the Bank often provides analysis and advice (South Africa, Gulf States)

2) Countries that borrow only from IDA, not from the IBRD

• Eligible for IDA credits – not considered creditworthy for IBRD loans.

• Almost all African countries.

• Loans at concessional rates

3) IDA/IBRD “blend” countries:

• Eligble for both IDA (by per capita income) and IBRD lending (creditworthiness standards) and elect to borrow from both. E.g.: India and Nigeria.

• 4) Member countries that are not eligible for either IBRD or IDA lending because of armed conflict, economic mismanagement, or failure to service World Bank debts.

• Myanmar/Burma.

• WB performs low level of operational work “watching brief”

• 5) Special cases, especially countries in post-conflict and post crisis situations

• Some are ineligible for IDA or IBRD financing nonetheless participate in multi-donor program financed by special funds, often administered in trust by the World Bank

• E.g.: Liberia, Timor Leste (prior to independence), the Occupied Palestinian Territories, Iraq

• 6) Countries considered too rich to borrow from the World Bank

• Above per capita of $6,000 (IBRD threshold).

• Some are “graduates” (I hate this term)

• De-graduation possible: countries that had ended their lending relationship ran into difficulties and sought renewed World Bank support.

The debate• Planners v. Seekers

• States v. Markets

• Centralized v. decentralized mechanisms of allocation• http://www.youtube.com/watch?v=7fWyD24_yjA

• http://www.youtube.com/watch?v=pfj7iit9Pm0

• http://www.youtube.com/watch?v=UtpiuQ0uR7s&NR=1

• http://www.youtube.com/watch?v=vQruuwuJnKE

• http://www.colbertnation.com/the-colbert-report-videos/59916/march-02-2006/jeffrey-sachs

• http://www.washingtonpost.com/wp-dyn/content/article/2006/02/12/AR2006021201150.html

• http://www.spiegel.de/international/spiegel/0,1518,druck-363663,00.html

• Contradiction?– World Bank has historically promoted “Washington Consensus”, but projects

themselves are non-market solutions.

• Is there any irony in the World Bank’s "dream" (A world without poverty)?

• It would go out of business.

• Bureaucratic perspective thoughts?

Final contradiction