Apr 1, 2014

IR - One Definition A Day: World Bank Group

IR - One Definition A Day: World Bank Group (p. 574 Ref. 1)

This collectivity consists of three intergovernmental organizations (IGOs): the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA) and the International Finance Corporation. The first named, the IBRD, is popularly known as the World Bank. As the title implies the twin purposes of setting up the World Bank, as part of the Bretton Woods system of international economic institutions, was to facilitate the rebuilding of those essentially developed economies which had been shattered by war and to assist in the more basic task of economic development of the less developed countries (LDCs). 

The Bank is the twin organisation of the IMF and indeed membership of the Bank is restricted to states which are also members of the Fund. Like the Fund, the Bank has a system of weighted voting which gives power to effect outcomes to those states which make the greatest contributions. These contributions are, in fact, expressed as subscriptions to the Bank and these member state subscriptions are one of the main sources of Bank funds. In addition the Bank goes into the private capital markets to raise funds and these borrowings now constitute the largest source of Bank liquidity. Being heavily infused with commercial banking principles it comes as no surprise that the Bank's lending policy follows fairly strict commercial criteria.

The need for an institution that would provide 'soft' loans led to the establishment of the IDA in 1960. Like the Bank the IDA makes loans rather than grants and, again as with the IBRD, the would-be recipients are vetted beforehand. Loans are made to recipients to encourage the development of their infrastructure. Unlike the Bank, the IDA is totally dependent upon member states' contributions for its source of funds.

The International Finance Corporation (IFC) was established in 1956 to encourage the growth of private enterprise and entrepreuniral skills in the LDCs. It limits its participation in projects to a minority share-holding and has particularly concentrated on secondary or manufacturing sectors.

The conservative orthodoxy of the Bank and the extent of the depressed situation in the world economy (outside of North America) after 1947 meant that the Bank was something of a bystander. The US took steps through measures like the Marshall Plan, through its defence spending and through other aid measures to pump-prime the economies of the AICs by running dollar deficits. As the Cold War became the clear and present danger for American leaders from Truman onwards so the foreign assistance programme was seen as too crucial to military security interests to be left to multilateralism as represented by the Bank.

The collapse of the Bretton Woods system and the oil shocks of the 1970s did nothing to reduce the marginalization of the Bank in the context of aid flows. The Bank did play some role in the receycling of petrodollars through the Western system after the oil shocks. It was rather two developments in the 1980s which served to resuscitate the fortunes of the Bank. The demise of collectivist economic strategies in favour of privatization and free-market reforms meant that the principles of economic liberalism which is the dominant ideology of the Bank now found a more receptive environment - both intellectually and politically. Second, the debt crisis and the various proposals mooted to deal with it such as the Baker and Braddy Plans have brought the Bank in from the cold as a key player in administering their implementation.

(Source: Réf Penguin Dictionary of IR)

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