World Bank

According to the World Bank website:

The World Bank is a vital source of financial and technical assistance to developing countries around the world. We are not a bank in the common sense. We are made up of two unique development institutions owned by 184 member countries; the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Each institution plays a different but supportive role in our mission of global poverty reduction and the improvement of living standards. The IBRD focuses on middle income and creditworthy poor countries, while IDA focuses on the poorest countries in the world. Together we provide low-interest loans, interest-free credit and grants to developing countries for education, health, infrastructure, communications and many other purposes.

The Bank says it aims to help governments in developing countries to reduce poverty by providing them with money and the technical expertise they require for a wide range of projects, including education, health, infrastructure, communications, government reforms and many other purposes.

America has always held a dominant role within the Bank due to the Bank's physical location in Washington and the fact that historically it has provided the highest amount of funding. This has led to the President of the World Bank always being an American citizen.

During the Reagan and Thatcher era of the 1980s, major changes took place within the World Bank. The former World Bank chief economist Joseph Stiglitz writes, "The Bank went beyond just lending for projects (like roads and dams) to providing broad-based support in the form of 'Structural Adjustment Loans', in connection with the IMF [International Monetary Fund]."

History

The origins of the World Bank can be traced back to the era of the Second World War as a consequence of the UN Monetary and Financial Conference at Bretton Woods, New Hampshire in 1944. According to the former World Bank chief economist Joseph Stiglitz, the World Bank evolved from the International Bank for Reconstruction and Development as "part of a concentrated effort to finance the rebuilding of Europe after the devastation of World War II and to save the World from future economic depressions".

The economist Robert Olivier writes, "their major objective was to provide a world within which competitive market forces would operate freely, unhampered by government interference, for they supposed that market forces would produce optimum results for the entire world".

According to an article for The Age:

Since its inception, the World Bank has lent and given grants and credits worth $400 billion which is spent on specific projects such as freeways and dams.

Structure

The World Bank is made up of the following two organisations:

• The International Development Association (IDA): This part of the World Bank sets out to help populations of the world's poorest countries. Established in 1960, IDA states its aims as "reducing poverty by providing interest-free credits and grants for programs that boost economic growth, reduce inequalities and improve people’s living conditions".

• The International Bank for Reconstruction and Development (IBRD): The IBRD was the founding institution of the World Bank. This part of the World Bank works to "reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services". The World Bank states, "IBRD is structured like a cooperative that is owned and operated for the benefit of its 185 member countries".

Criticism

Structural Adjustment Programs

Structural adjustment is a term used to describe the policy changes implemented by the International Monetary Fund (IMF) and the World Bank (the Bretton Woods Institutions) in developing countries. These policy changes are conditions for getting new loans from the IMF or World Bank, or for obtaining lower interest rates on existing loans.

Critics of these programs, including Anup Shah, author of the Global Issues website, say they increase dependency on richer nations. The programs have a set of pre-conditions which each country must meet to receive funds, namely:

• Cutbacks or “Liberalization” of the economy
• Resource extraction/export-orientated open markets
• Reduction in the role of the state
• Privatization
• Reduced protection of domestic industries
• Currency devaluation
• Increased interest rates
• Elimination of subsidies
• Reduction or removal of regulations and standards to attract foreign investors.

Shah states that the impact of these preconditions on poorer countries can be devastating. He details the following effects:

• Poor countries must export more in order to raise enough money to pay off their debts in a timely manner.
• Because there are so many nations being asked or forced into the global market place—before they are economically and socially stable and ready—and told to concentrate on similar cash crops and commodities as others, the situation resembles a large-scale price war.
• Then, the resources from the poorer regions become even cheaper, which favors consumers in the West.
• Governments then need to increase exports just to keep their currencies stable (which may not be sustainable, either) and earn foreign exchange with which to help pay off debts.
• Governments therefore must:

spend less

reduce consumption

remove or decrease financial regulations

and so on.

• Over time then:

the value of labor decreases

capital flows become more volatile

a spiraling race to the bottom then begins, which generates

social unrest, which in turn leads to "IMF riots" and protests around the world.

Inspection Panel

In 1993 the World Bank created an Inspection Panel to certify that its operations remained true to its outlined operational polices and procedures. In an article for the Cornell International Law Journal, Enrique R. Carrasco and Alison K. Guernsey provide a critique of this panel. The authors state, "The creation of the Panel was, at the time, an unprecedented effort to increase the Bank’s accountability." The need for such a move, they write, arose because:

Prior to the establishment of the Panel, the Bank had engaged in a number of projects that devastated local populations and caused significant environmental damage. One highly visible project involved the Sardar Sarovar Dam on the Narmada River in India. In the late 1980s, the Bank advanced India a loan to build a dam that would supply water to 30 million people and irrigate crops to feed another 20 million. The project was deeply flawed, however, requiring the unanticipated relocation of thousands of people and threatening to cause widespread soil erosion.

The then president of the World Bank, Lewis Preston, had commissioned an independent review of the project, known as the Morse Commission. According to Carrasco and Guernsey:

The Commission’s report revealed that the Bank had pervasively failed to follow its own social and environmental policies in project lending. Another internal review of the Bank, known as the Wapenhans Report, described a “culture of approval” at the Bank — an attitude that emphasized increasing the Bank’s loan portfolio without adequately taking into account the social and environmental consequences of the project lending. After unrelenting pressure from environmental and human rights non-governmental organizations (NGOs), the World Bank established the Inspection Panel with the hope of bringing transparency to the Bank’s project lending.

The Panel is charged with investigating complaints filed by parties in borrower countries who believe that the Bank is violating its policies or procedures in the design, preparation, or implementation of a Bank-funded project.

However, Carrasco and Guernsey point out that there is a fundamental problem with the Inspection Panel: it is supposed to be independent from the World Bank, but it is comprised of three members who are appointed by the World Bank.

Helping US interests, not the poor?

The World Bank has been heavily criticised about its operations in developing countries. Some critics believe that the World Bank was formed not to fight poverty but to provide a front to fund US business interests, and argue that since the bank's existence, worldwide poverty has increased.

An editorial in The Ecologist (2000) argues:

That this is so should come as little surprise. The World Bank, IMF and WTO were not created with poverty alleviation primarily in mind. They were designed at the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, in July 1944, to fulfil quite another agenda. To cite Henry Morgenthau, then US Treasury Secretary and president of the conference, the purpose was, "the creation of a dynamic world economy," to sustain the domestic American economy's continuous expansion by ensuring it sufficient access to foreign markets and raw materials.

America's control over the appointment of the president of the World Bank has also drawn criticism. In recent years, developing nations have been highly critical of this process because they say it means the bank becomes the tool of developed countries, not those for whom it was set up to benefit.

Wolfowitz resignation

Criticism of US control of the World Bank reached a head during the presidency of Paul Wolfowitz and in the wake of his resignation in 2007. Wolfowitz resigned his presidency after a row over his role in the promotion within the Bank of his companion Shaha Riza. Barbara Stocking, director of Oxfam, commented:

The US and other rich countries must now show that they are serious about good governance by reforming the recruitment process to allow the next head of the Bank to be appointed on merit and commitment to alleviate poverty, rather than being the choice of the American president.

The former Word Bank chief economist Joseph Stiglitz also reportedly believes the Wolfowitz drama shows that the mechanism is flawed and must be fixed.

Criticism from former insider

One of the most prominent and outspoken critics of the World Bank is Nobel laureate in economics Joseph Stiglitz, who was the World Bank's chief economist and senior vice president until January 2000.

Stiglitz, according to his biography on the Global Policy Forum website,

grew increasingly disillusioned with the failures of neo-liberal policy and began to voice his thinking in public speeches. Increasingly outspoken, he eventually was ousted from his World Bank post, allegedly on orders from US Treasury Secretary Larry Summers.

Since his departure he has challenged the effectiveness of the policies of both the World Bank and the IMF. Stiglitz notes, "the Institutions (World Bank and IMF) are not representative of the nations they serve... it has never even been a prerequisite that the head should have any experience in the developing world... while almost all of the activities of the IMF and World Bank today are in the developing world."

Stiglitz states:

There is obviously something peculiar about a global financial system in which the richest country in the world, the United States, borrows more than $2 billion a day from poorer countries – even as it lectures them on principles of good governance and fiscal responsibility.

Stiglitz warns that countries may begin to lose confidence in the United States and the IMF due to its increasing debt issues.

East Asia crisis

Stiglitz has criticised the World Bank along with the IMF for its role in the East Asia crisis which erupted in 1997. Stiglitz argues that the crisis, which began in Thailand, and eventually sprawled globally, was due to countries in East Asia being pressured by the IMF and US Treasury into liberalising their financial and capital markets. This international pressure, writes Stiglitz, "provoked flood of short-term capital--that is, the kind of capital that looks for the highest return in the next day, week, or month, as opposed to long-term investment in things like factories." This led to unsustainable economic and financial practices as Stiglitz notes:

just as suddenly as capital flowed in, it flowed out. And, when everybody tries to pull their money out at the same time, it causes an economic problem. A big economic problem.

Country Assistance Strategy

Stiglitz showed the journalist Greg Palast a confidential World Bank document (not leaked by Stiglitz) called a "Country Assistance Strategy". Palast writes in an article for The Observer:

There's an Assistance Strategy for every poorer nation, designed, says the World Bank, after careful in-country investigation. But according to insider Stiglitz, the Bank's staff "investigation" consists of close inspection of a nation's 5-star hotels. It concludes with the Bank staff meeting some begging, busted finance minister who is handed a "restructuring agreement" pre-drafted for his "voluntary" signature.

Stiglitz said the Bank hands every minister the same exact four-step programme:

Step One is Privatization - which Stiglitz said could more accurately be called, "Briberization". Rather than object to the sell-offs of state industries, he said national leaders - using the World Bank's demands to silence local critics - happily flogged their electricity and water companies. "You could see their eyes widen" at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billion off the sale price of national assets.

Stiglitz said the biggest "briberization" of all was the 1995 Russian sell-off:

The US Treasury view was this was great as we wanted [Boris] Yeltsin re-elected. We don't care if it's a corrupt election. We want the money to go to Yeltsin via kick-backs for his campaign.

Palast commented:

Most ill-making for Stiglitz is that the US-backed oligarchs stripped Russia's industrial assets, with the effect that the corruption scheme cut national output nearly in half causing depression and starvation.

Stiglitz said that Step Two of the IMF (International Monetary Fund)/World Bank one-size-fits-all rescue-your-economy plan is "Capital Market Liberalization":

In theory, capital market deregulation allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money simply flowed out and out....

"The result was predictable," said Stiglitz of the Hot Money tidal waves in Asia and Latin America. Higher interest rates demolished property values, savaged industrial production and drained national treasuries.

At this point, the IMF drags the gasping nation to Step Three: Market-Based Pricing, a fancy term for raising prices on food, water and cooking gas. This leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls, "The IMF riot".

The IMF riot is painfully predictable. When a nation is, "down and out, [the IMF] takes advantage and squeezes the last pound of blood out of them. They turn up the heat until, finally, the whole cauldron blows up," as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998. Indonesia exploded into riots, but there are other examples - the Bolivian riots over water prices last year and this February, the riots in Ecuador over the rise in cooking gas prices imposed by the World Bank. You'd almost get the impression that the riot is written into the plan.

Workers' rights

The World Bank has been heavily criticised for not including workers rights and protection within its policies and loan lending agreements. A review by Multinational Monitor of IMF and World Bank loan documents revealed that "'the institutions’ loan conditionalities include a variety of provisions that directly undermine labour rights, labour power and tens of millions of workers’ standard of living". These include:

• Civil service downsizing
• Privatization of government-owned enterprises, with layoffs required in advance of privatization and frequently following privatization
• Promotion of labour flexibility — regulatory changes to remove restrictions on the ability of government and private employers to fire or lay off workers
• Mandated wage rate reductions, minimum wage reductions or containment, and spreading the wage gap between government employees and managers
• Pension reforms, including privatization that cut social security benefits for workers.

These findings relate to criticisms of the World Bank basing its work on corporate interests rather than directly focusing upon the vast majority of the poor in developing countries. Multinational Monitor reports:

measures imposed by the World Bank inflict needless suffering, worsen poverty and actually undermine prospects for economic growth.

In response to this the World Bank states:

these policies may inflict some short-term pain, but are necessary to create the conditions for long-term growth and job creation.

Beyond reform?

Writing in The Guardian, the journalist George Monbiot states that the World Bank and the IMF are "helping the poorest to get poorer", that they are "beyond reform", and they they should be "shut down". In Monbiot's view, the Bank is "destroying health and education in the developing world". He gives the example of Zambia, where

the conditions the bank had attached to its loans — cuts in state spending and the privatisation of services — had contributed to a 25% increase in infant mortality since 1980 and, as parents now have to pay to have their children educated, a disastrous decline in school enrolment.

Monbiot is sceptical of the World Bank and IMF's claims to be the friends of the poor. While the institutions claim that the bad old days of poor countries being obliged to accept policies imposed by the first world are over, and that debtor nations are now allowed to devise their own "poverty-reduction strategies", Monbiot writes that the notion of choice is illusory:

This sounds fine, until you discover that, as the World Development Movement has documented, the recipient countries can request whatever they want as long as it’s neoliberalism. As one senior bank official pointed out, the new scheme is a "compulsory programme, so that those with the money can tell those without the money what they need in order to get the money".

In his book The Age of Consent, Monbiot states:

Every few years the Bank admits that some of its policies have been disastrous, and that it needs to change the way it works. It then changes the names of its programmes, rewrites its stated objectives and continues to operate much as it did before.

Criticism from India

In 2007 a tribunal was held in New Delhi, India, to assess the impact of the World Bank's operations in India. It was called the Independent People's Tribunal on the World Bank in India. According to the group's website:

Over 150 deponents presented testimony, 200 students volunteered their time to make the event happen, 12 members sat on the Jury, and over 700 people attended. The Tribunal process quickly inspired similar events in The Hague, Netherlands and in Dhaka, Bangladesh.

The Tribunal's judgment is summarised on its website as follows:

The evidence and depositions we have witnessed present a disturbing and shocking picture of increased and needless human suffering since 1991 among hundreds of millions of India's poorest and most disadvantaged in rural areas and in the cities. It is clear to us that a significant number of Indian government policies and projects financed and influenced by the World Bank have contributed directly and/or indirectly to this increased impoverishment and suffering. All this has taken place while a minority of India's population that constitutes the middle class and rich has enjoyed the fruits of an economic boom.

Quotes

“It is the vision of the World Bank Group to contribute to an inclusive and sustainable globalization – to overcome poverty, enhance growth with care for the environment, and create individual opportunity and hope.” - Robert Zoellick

Speaking at the National Press Club in Washington, marking his first 100 days as President of the World Bank Group, Zoellick explained that, “Globalization offers incredible opportunities. Yet exclusion, grinding poverty, and environmental damage create dangers. The ones that suffer most are those who have the least to start with – indigenous peoples, women in developing countries, the rural poor, Africans, and their children.”

People

• President: Robert B. Zoellick (appointed 2007)

Past presidents

• Paul Wolfowitz June 2005-June 2007. He resigned 2007 after a row over his role in the promotion of his companion Shaha Riza, an expert at the World Bank)

• James D. Wolfensohn June 1995-May 2005. Implemented a range reforms to help achieve his mission of fighting global poverty. Wolfensohn broke ground on major areas including corruption, debt relief, disabilities, the environment and gender. He drew attention to the importance of involving young people.

• Lewis Preston September 1991-May 1995. During his term many significant events occurred such as the admission of the former Soviet Union to the Bank, the initiation of lending programs in the newly democratic South Africa, and the influx of private sector capital into developing countries.

• Barber Conable July 1986-August 1991

• Alden Winship Clausen July 1981-1986

Affiliates

• Economic Development Institute (EDI)
• International Finance Corporation (IFC)
• International Development Association (IDA)
• International Centre for the Settlement of Investment Disputes (ICSID)
• Operations Evaluation Unit
• Consultative Group on International Agricultural Research (CGIAR)
• World Bank Staff Association
• World Bank Administrative Tribunal
• Multilateral Investment Guarantee Agency
• Inspection Panel

Contact

Website: http://www.worldbank.org