Development organizations Part 1 – The World Bank

The International Bank for Reconstruction and Development (IBRD)

International Development Association (IDA)

Multilateral Investment Guarantee Agency (MIGA)

International Finance Corporation (IFC)

Hurd, Ian. 2010. International Organizations: Politics, Law, Practice. New York: Cambridge University Press. CHAPTER 4

1

Plan

• Movie review

• World Bank vs. IMF

• Governance

• World Bank structure

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Movies

3

Coming Soon:

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On to the World Bank…

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Key differences between the IMF and the World Bank

• IMF:– Exchange rate stability & Monetary policy– Mission creep development– Large loans for macro-targets ($100s millionsbillions)– Staff: around 2000 people – mostly in DC

• 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– Staff ~ 10,000 people – also mostly in DC but 100 offices

worldwide6

The World Bank• The primary DEVELOPMENT international institution

• Projects of various scopes in both emerging market & poor countries

• 2006: – Issued $23.6 billion (loans & grants) – Through 279 projects

• 2011 http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20103853~menuPK:1697035~pagePK:51123644~piPK:329829~theSitePK:29708,00.html

– Issued $46.9 billion (loans & grants) – Through 303 projects

• Critics (e.g. Easterly 2005):– World Bank has fallen short of its goals of improving living

standards and reducing poverty

• Why?– Misguided policy conditions through the development projects

• Intervening in the market? (not enough market?)• Austerity conditions (not enough state?)• International politics? Policy conditions ignored? 7

Some reasons the IMF &the World Bank are confused

• Both use conditionality

• The World Bank has been known to require an IMF program be in good standing– So the conditionality may run through the IMF

• Both institutions founded in 1944 @ BW, NH

• Both are in DC (right next to each other)

• Both do their Annual Meetings simultaneously

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

• Both have a similar governance structure 8

World Bank Executive Board of Directors

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

• http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/ORGANIZATION/BODEXT/0,,pagePK:64020055~theSitePK:278036,00.html

• http://web.worldbank.org/external/default/main?menuPK=395550&pagePK=64099288&piPK=64099409&theSitePK=395544

Photo taken at the Board Room, June 20099

WB Appointed & Elected Directors• Appointed:

– US, Japan, Germany, France, UK

• Elected:– China, Saudi Arabia, Russia

• Regionally elected (ad-hoc)

– Australia• South Pacific, New Zealand, Korea

– Brazil• Latin American countries

– Africa:• French group

• English group

• *NEW* South Africa / Nigeria / Angola group!

– Iran• Afghanistan, Algeria, Ghana, Morocco, Pakistan, Tunisia

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Really ad-hoc elected WB Directors:

• Italy– Greece, Malta, Portugal, San Marino, Albania, & Timor-

Leste

• Austria– Belgium, Luxembourg, Belarus, Czech Republic,

Hungary, Kosovo, Slovak Republic, Slovenia, & Turkey

• Netherlands– Armenia, Bosnia and Herzegovina, Bulgaria, Croatia,

Cyprus, Georgia, Israel, Macedonia, Moldova, Montenegro, Romania, & Ukraine

• Switzerland– Azerbaijan, Kazakhstan, Kyrgyz Republic, Poland,

Serbia, Tajikistan, Turkmenistan, & Uzbekistan11

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How do they do it?

• Foreign aid?• http://www.google.com/search?aq=f&gcx=c&sourceid=chrome&ie=UTF-8&q=preis+der+macht#pq=preis+der+macht+vreeland+borat&hl=en&sugexp=pfwc&cp=21&gs_id=k&xhr=t&q=preis+der+macht+borat&qe=cHJlaXMgZGVyIG1hY2h0IGJvcmF0&qesig=wJuY3-DudDrzG

ZKMo47TmA&pkc=AFgZ2tlF23YTxnM8pdeqAOvnwqxYyOnbQimVm0bbgvSNmGqwZhnGRGGE9ldzs3Od5KNAjtLuXtnBgklaN5Konxtd0jACwBxNzQ&pf=p&sclient=psy-ab&source=hp&pbx=1&oq=preis+der+macht+borat&aq=f&aqi=&aql=&gs_sm=&gs_upl=&bav=on.2,or.r_gc.r_pw.r_cp.&fp=8281380e0ebeaaac&biw=1440&bih=763

• http://www.handelszeitung.ch/konjunktur/europa/iwf-preis-der-macht

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Does political power at the World Bank matter?

• 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?

– (Answer: Officially, it doesn’t.)

• How does this influence its lending decisions?– (Answer: Again, officially, it doesn’t.)

• “Governance”– Even officially, however, the World Bank does try to improve “governance” – this

is a euphemism for “democracy.” Many members (e.g., China) would object if “democracy” were used officially.

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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…UNSC members continue to get

more World Bank programs

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

• International Bank for Reconstruction and Development• IBRD (often called “the World Bank”)

• International Development Association• IDA – created in 1960 – concessional financing

• “WORLD BANK”• IBRD & IDA are tightly connected – work as a single unit

(though the terms of their loans are quite different)

• International Finance Corporation• IFC – lends to private companies for private sector projects. Has its

own building, own executive vice pres. & staff (more “entrepreneurial”)

• Multilateral Investment Guarantee Agency• MIGA – provides insurance to private companies against political

risk

• ICSID – International Center for the Settlement of Investment Disputes

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Membership

• IBRD: 188 countries

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

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

– Excel file

• MIGA: 174* countries

• IFC: 182*

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Voting

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

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

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• 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

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• 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

• 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.

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• 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?

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

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6 types of countries

1. Countries that borrow only from IBRD

2. Countries that borrow only from IDA (not IBRD)

3. IDA/IBRD “blend” countries

4. Problem countries

5. Special cases

6. Too rich to borrow from the World Bank

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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)

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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

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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.

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• 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”

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• 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

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• 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.

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• Is there any irony in the World Bank’s “dream” (A world without poverty)? – It would go out of business. – Bureaucratic perspective thoughts?

• Washington Consensus– World Bank has historically promoted market

solutions, but its projects are non-market!

Contradictions @ World Bank

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Who should lead the World Bank?

• http://www.thedailyshow.com/watch/wed-march-16-2005/add-hawk

• Wolfenson

• Wolfowitz

• Zoellick

• … who’s next? A?

• Another American?

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Zoellick @ Gtown• http://vreelander.blogspot.com/2010/09/who-should-lead-multipolar-world-world.html

• Answer:– US Congress

• Global International Institutions – Between a rock & a hard place– Must make room for emerging markets– But need to keep advanced industrial countries on board

• Regional option?– If emerging markets don’t have enough voice– Will they form their own international institutions?– How can the US keep them at the table, without

alienating Europe? 33

Jim Yong Kim

http://www.worldbank.org/

34Ngozi Okonjo-Iweala

Take aways:

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Take aways• IMF and World Bank: similarities/differences

• Political power matters

• World Bank vs. World Bank Group

• The Debate

– States v. Markets

– Planners v. Seekers

– Centralized v. decentralized mechanisms of allocation

• World Bank contradictions

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Thank youWE ARE GLOBAL GEORGETOWN!

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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.

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