World Bank Group
Introduction
A global financing institution that gives loans to be used to fund capital programs initiated by developing countries is known as the World Bank. The goal upheld by the World Bank is that of poverty reduction. Virtually all World Bank choices are directed by commitment to promoting global trade, foreign investment as well as smoothing the progress of capital outlay. The difference between World Bank and World Bank Group is that the World Bank is made up of solely two institutions. These institutions are the International Development Association and the International Bank for Reconstruction and Development.
The World Bank Group on the other hand is made up of the two institutions and three additional ones which are Multilateral Investment Guarantee Agency, International Finance Corporation and the International Centre for Settlement of Investment Disputes. The World Bank Group was formally established on 27th of December, year 1945 after a global ratification of agreements of Bretton Woods, which originated from the U. N. Monetary and Financial Conference which took place between 1st and 22nd of July Year 1944. The World Bank Group also formed a basis for the 1951, Osiander Committee which was responsible for preparing and evaluating the World Development Report. A detailed examination of the World Bank will be presented in this essay paper.
Discussion
History of the World Bank
The World Bank is the result of a conference known as the Bretton Woods Conference that was held in the year 1944. Another organization that was launched alongside the World Bank is the International Monetary Fund. Launching was done in the presence of several vital policy makers from Britain and the U.S.A as well as world delegates. Initially, the World Bank played the role of lending money till the year 1968, after fiscal conservatism. It was essential to carefully screen loan applications. The nest action plan was establishing the World Bank as an institution that functioned in providing loans as well as investment. France was the first nation to receive assistance from the World Bank under the leadership of John McCloy (Marshall, 2008).
According to Adams (1999), the World Bank institution has an objective of promoting global sustainable development as well as reducing poverty. The World Bank attempts to meet its objectives through providing technical help and policy advice, through lending and finally through economic analysis and production of research. The Bank itself is a vast organization that employs over about ten thousand people. It involves a blend of four organizations that operate under a common board but undertake varying roles.
The first organization is known as the International Bank for Reconstruction and Development, IBRD, which was founded in the year 1946. This organization is the original and integral member of the World Bank Group. Its key role is borrowing funds and lending them to public sector institutions or member governments for approved projects. The leans are medium-term that are given normally up to a period of ten years but at times may extend up to twenty years.
The second organization or component of the World Bank is known as the International Development Agency, IDA, which is an aid agency founded in the year 1960. The activities of this organization are limited to a group of sixty member countries which are mainly located in South Asia and Africa continent. Such countries often have a low GDP per head. The loans provided by IDA are long-term and may last up to a period of forty years. The staffs of IDA are combined with IBRD staff and are both involved in aid and non-aid work. However, both institutions have separate accounts. Financing of IDA lending is derived from the entire World Bank group profits as well as grants from member governments (Adams, 1999).
The International Finance Corporation, IFC, is the third component of World Bank which was founded in the year 1956. This organization functions in lending loans to private sector institutions without a guarantee from the government. Additionally, it is involved in taking equity shares in the private sector enterprises. The Final component of the World Bank is the Multinational Investment Guarantee Agency, MIGA, which was established in the year 1988. The role of this organization is to guarantee private sector investors against repatriation and expropriation risks in developing countries.
The organization is relatively small, though its capital base was increased to coincide with its tenth anniversary. Its foundation followed the debt crisis in the 1980s, giving prominence to problems of sovereign risks as contributors to the high rates of interests that several developing countries were obliged to pay so that they could borrow, and of the insufficient access of countries to markets for novel loans even at high interest rates (Marshall, 2008).
The World Bank institution whose headquarters are in Washington D.C Has several goals and some of its goals include increasing lending to middle-income nations, achieving the Millennium Development Goals, generating loans with low or no income to under-developed nations, developing and forwarding easily payable rates of interest and increasing periodic grant-investments by member countries. The specific definition of the World Bank is a bank whose mission is to assist under-developed and developing countries globally to develop an investment environment, reduce poverty, work towards sustainable growth economically, increase employment opportunities, strengthen governments through education, promote socio-economic growth through investment, combat corruption, empower development of judicial and legal systems, business opportunities as well as protection of individual rights (Adams, 1999).
World Bank Structure
Under the World Bank structure, the Bank is first of all a financial institution just as its name suggests. As noted earlier, the original goal of the bank was to overcome the imperfections of capital market. This is through provision or otherwise stimulation of long-terms low interest loans to be utilized in reconstruction and development of capital-poor areas. Alleviation of poverty was not part of World Bank’s original mandate. Rather, reduction of poverty came into the agenda of the Bank gradually, with the establishment of IDA, and especially through the championship of McNamara. Poverty reduction is currently the core mission of World Bank (Gilbert and Vines, 2000). It is however unfortunate that there has been a non-linear progress towards achieving this mission. Over more than fifty years of World Bank’s existence, there have been radical differences of view about how the bank could effectively promote poverty reduction.
Another fundamental role of World Bank is that of research. If the role of the Bank were solely financial, then research would be redundant. Instead, the department of research has taken on a central role, which is kind of educational. The target audience has partly comprised of client governments, but the department of research has also taken part on the operational sections of the Bank as well as on community development at large. Gradually, the Bank has adopted the role of defining and constructing a model of the best developmental practice. Despite the fact that the research role was not expected in the World Bank Charter, by the year 1994, the research budget was almost double that of economics (Gilbert, 2000).
Under the World Bank governance, the Bank is a multilateral body which allows richer countries, particularly the United States to help with the developmental problems affecting poor countries without forming bilateral political power associations with them. The institution enables development assistance to be given and at the same time avoiding excessive imperialism. This is through enabling arm’s-length associations to be maintained between nations in the world’s core on one hand and its developing periphery on the other hand.
There are several World Bank units and some of them will be discussed below. One of the fundamental units is the corporate secretariat, which plays the role of supporting the daily operation of the Board of Executive Directors of the Bank. The role of this unit is administration of issues that are related to membership including the Board of Governors Annual Meetings as well as capital subscriptions. The unit also supports the Independent Inspection Panel. The other unit of World Bank that is worth noting is the Development Economics Unit, which is the key research unit of the Bank. The chide economist is the head of this unit. The main roles played by this unit include development of prospects analysis, provision of data, analytical tools, research findings as well as policy advice in support of the operations of the Bank and advice to its clients (Gilbert, 2000).
External Affairs is the other unit of the World Bank, which is responsible for managing communication of key issues related to the Bank. Examples of such issues include handling relations with the media, the public, governments of donor countries, other organizations as well as the local community. It organizes speaking engagements for the representatives of the Bank as well as producing and distributing publications. Another unit that is worth mentioning is the financial management which comprises of departments and staff positions such as financial controller, chief financial officer, treasury, portfolio management, loans, and guarantees. The World Bank has vice presidencies for controller, chief financial officer, resource mobilization and co-financing, strategy and resource management and treasury (Salda, 1995).
General services, is a unit that functions in designing and maintaining office space at the Bank Group headquarters as well as overseas. Some of the tasks it undertakes include travel and shipping support, security, translation and interpretation, food services, printing and graphic design. Human resources, is another unit that functions in managing all personal issues. It gives information regarding job opportunities and internships. The World Bank and IFC have separate human resources. At MIGA, the Office of Central Administration plays the role of handling human resources.
The human resources of the Word Bank plays the role of conducting orientation of novel staff members at the Bank Group as well as a staff exchange program with other companies and organizations. Separate from the units of human resources is the World Bank Group’s Conflict Resolution System, which is a group of autonomous offices that are responsible for addressing workplace problems like disagreements regarding staff rules, ethical issues, career advancement, pay and benefits issues. Additionally, the human resources units advocate for the welfare and rights of staff members (Salda, 1995).
Under the technical perspective, the World Bank is a component of the United Nations system. However, it has a different structure of governance whereby each World Bank institution is under the leadership of its member government. The governments subscribe to their basic capital share with voted that are proportional to the extent of shareholding. Certain voting rights that are applicable to all countries are given through membership. There are additional votes that are dependant on financial contributions to the institution. The President of the United States has the power or role of nominating the World Bank president who is then elected by the Board of Governors of the Bank (Gilbert, 2000).
How the World Bank Functions
The World Bank functions in an extraordinary variety of nations and situations. It supports various programs that are gradually adapting to widely varying realities and dynamic world agenda and circumstances. The World Bank’s practices and actions are guided by a vast body of historical experience and accumulated case history. Indeed, a deliberate dependence on precedents and the urge to ensure equity across nations often damps appetite and desire for bold novel initiatives. The World Bank as a public institution with numerous stakeholders, informal and formal, holding it constantly to account, is subject to many layers of complexity which often lead to heavy bureaucracy and slow process of decision-making. There have been successive attempts to simplify the World Bank policies and procedures (Adams, 1999).
An essential counterintuitive and contradictory reality is that the World Bank most of the times fails to function with creativity and impact and at times fast speed. Three circumstances are required to achieve the best results. These are a propelling crisis, strong pressures from a key governmental member and finally the World Bank’s own leaders.
The heart of World Bank operations are relationships with individual countries. There are as many different relationships as there are different countries and such relationships take diverse forms over time. Amid the maze of challenges facing operations as well as history and practices in individual nations, there are five features that hold special significance. These are the Bank’s classification of countries into various categories, the process of forming a development strategy for individual countries, operation work in individual countries including both lending and advice and finally efforts to assess performance and adapt the course along the way (World Bank, 2003).
Another aspect under operation that is worth noting is that of poverty reduction strategies. For the poorest developing countries globally, the World Bank help plans are grounded on strategies geared towards reducing poverty. The World Bank implements strategies that pertain specially to an individual country through combination of a cross-section of local groups with an in-depth analysis of the nation’s economic and financial condition.
The next phase is for the government to identify the targets and priorities of the country towards poverty reduction, and then the aid efforts of the World Bank are aligned correspondingly. A total of forty five nations pledged an amount of twenty five point one billion U.S. dollars in an attempt to assist the poorest nations globally. This financial aid is directed to the International Development Association, a World Bank institution that disseminates the donations to eighty countries that are poor (Salda, 1995).
A temporary management responsibility has been assigned to the World Bank towards the Clean Technology Fund. This fund is mainly involved in developing renewable energy that is coal-powered and cost-competitive. Another initiative of the World Bank is the clean air initiative that aims at advancing innovative means of improving the quality of air in town and cities. To achieve this, the Bank has formed collaborations in specific world regions through knowledge and experience sharing. It is thus clear that the World Bank operates through forming partnerships as well as coming up with constructive initiatives (Marshall, 2008).
Another aspect of World Bank Operations that is worth examining is Financial Management in World Bank Operations. It is evident that procurement and disbursement plans as well as financial management are the fundamental elements of the financial framework of the operations of World Bank. In combination, these plans are expected to give a reasonable assurance that the funds which the World Bank disburses are utilized in an appropriate manner, and only for the approved role.
The application of World Bank Financial Management guidelines and polices ensures that reasonable assurance is attained. The aim of the World Bank is to come up with policies that are consistent to with the popularly accepted global codes and standards, and apply then in specific operations in a manner that supports sustainable financial management capacity development. In leading operations, financial management sector ensures that the guidelines and policies are adhered to (Gilbert, 2000).
The World Bank’s financial management is every country is influenced by the nation’s institutional environment and developmental priorities. The other determinant is the Bank engagement nature in regard to the Country Assistance Strategy. The size and nature of a country’s development programs and the design and objectives of the operations financed by the Bank are determined by the country institutions and priorities. There are two basic types of lending instruments utilized by the World Bank in its operations.
These are development policy loans and investment loans. One feature of investment loans is that they have a long-term focus, which may range from five to ten years. These loans can be utilized in financing works, goods and services that support social and economic development programs in a wide spectrum of sectors. Development policy loans on the other hand have a focus that is short terms and can be utilized in providing fast-disbursing external financing aimed at supporting institutional and policy changes (Adams, 1999).
The World Bank has a strong financial management policy framework and an operating model that is risk-based and intended for investment functions. The role of investment lending operations with financial management plans is to make sure that the loans provided by the Bank are utilized appropriately. Hence, for every investment program, there should be satisfactory arrangement put in place for budgeting purposes.
Under development policy operations, loans provided are not utilized in financing specific programs and transactions but rather, providing a balance payments and budget to support borrowing nations. The World Bank thus focuses on the borrower’s general use of foreign exchange instead of focusing on the specific utilization of Bank funds. The financial management operations are directed towards making sure that the Bank has current knowledge of financial arrangements (Gilbert, 2000).
Information and Communication Technologies
Information and communication technologies have the capability of speeding up development and improving various social services. There are two programs that the World Bank has whose focus is finding the best means of supporting implementation of technology. These programs are the Department and the Development Communication Division, DEVCOMM, and Global Information and Communication Technologies, GICT. GICT is a joint department of the IFC and World Bank which helps in developing and promoting access to information and communication technologies in developing countries. This program provides private companies, governments and community organizations with the expertise and capital required for developing and exploiting such technologies in order to foster development and reduce poverty (World Bank, 2003).
The Development Communication Division of the World Bank gives clients strategic communication advice and tools needed for development and implementation of successful projects as well as pro-poor reform efforts. This programs works at creating mechanisms for broadening public access to information on reforms as well as strengthening the clients’ abilities to listen to their constituencies, empower grassroots organizations and negotiate with stakeholders. The program also supports communication activities that are based on public opinion research (World Bank, 2003).
Challenges Facing the World Bank
Marshall (2008) states that, the World Bank’s global reach and complex mandate do not lend themselves to approaches that are simple. While the institution’s poverty mandate remains forward-looking and salient, World Bank faces the challenges of contributing to world development agendas while at the same time remaining relevant to the client governments with regard to having significantly many choices in seeking support either from private or bilateral enterprise. There are radical tensions among various paths and hence, strategic decisions continuing to preoccupy the minds of leaders and observers in a similar manner.
The size and scope of the World Bank are among the challenges that are under constant discussions. There is an obvious link between the size of the institution and its scale of operation, its expected work as well as the available resources and the roles assigned to different actors. The debate aligns along familiar lines. The ambition of some people is for a form of leadership and coordination with an expanded role for the World Bank. This reflects a comprehensive understanding of challenges regarding development which have been witnessed in the past few years (Marshall, 2008).
The World Bank is facing major financial challenges, which has worsened the situation in International Monetary Fund. The IMF makes payment of its bills using profits that are made, and this has made lending to middle-income nations extremely problematic. The Organization is projecting two hundred and twenty four million dollar deficit with hardly any such countries in trouble nowadays. It is asking its member nations if it is possible to begin selling off some of the gold that was deposited with it following the Second World War. Both the World Bank and the International Monetary Fund were established in the year 1944, and at that time world financial markets did not exist (Adams, 1999).
The initial responsibility of the World Bank was that of financing European reconstruction through the Marshall plan. The initial idea was to lend money to governments that deserved assistance. It is unfortunate that the current world has a huge global capital markets in which investors are extremely willing to make investments on developing nations. Over the past few years, the World Bank’s net lending has plummeted even as it maintains shopping of loans to various countries such as Turkey, Brazil, China, Russia, and at times on terms that are hugely generous. Lending is the main role of the biggest component of the World Bank, which is the International Bank for Reconstruction and Development.
The member states of this organization make deposits while the Bank sells bonds that are backed by those pledges and deposits followed by lending out the money at a small deposit. The other component of the World Bank, International Development Association, receives constant cash infusions from wealth nations, and lends the money on terms that are almost fee to genuinely poverty-stricken nations, especially in the continent of Africa. The contribution of the United States is just below one billion dollars annually or zero point zero four percent of the federal spending (World Bank, 2003).
Some experts recommend the World Bank to ceases lending funds to middle-income nations and instead give the loans to poorest countries in form of outright grants. They have further argues that great impact could be created by the World Bank through making better use of the assets available. A good example of the assets under discussion is the expertise that the Bank’s staff has as well as the potentiality of coordinating global action. Lending should serve as a guide to advising and continual reconstruction of the Bank’s insight and knowledge. Some of the supporters have changed their stance and tend to embrace the ideology of reducing the size and scope of the Bank in order to enhance its relevancy (Adams, 1999).
The effectiveness of the World Bank has also been questionable. This is according to numerous critics. Majority of the critics are from non-governmental organizations as well as academicians. One popular critic is the Bank’s former Chief Economist called Joseph Stiglitz, who also criticized the IMF, the developed country negotiators and the Treasury Department of the United States. According to critics, the free market reforms that are often advocated by the World Bank cause harm to the economic progress when implemented in an inappropriate manner. The loan agreements of the World Bank may also result to procurement of services and goods at non-free market and uncompetitive prices (World Bank, 2003).
The Structure as well as the assumptions of the World Bank in its operations has been thought to harem developing countries instead of promoting them. In regard to assumption, criticisms have been directed towards the Western recipes and highly homogenized development upheld by the World Bank. According to the World Bank’s perspectives, it is extremely difficult to differentiate different regions and countries. Consequently, it is challenging for them to get uniform assistance necessary for economic and social development.
The demerit of this kind of assumption is that Western approaches to life are employed and traditional economic structures are done away with in order to achieve even small success portions. Another assumption held by the World Bank is that of poor countries lacking the ability to modernize without advice and money from developed nations. This assumption is harmful to developing and poor countries, which opt to remain adamant and dependent on developing countries in order to succeed. Such countries have adopted the view that they cannot work independent towards national success (Marshall, 2008).
Supporters of the World Bank on the other hand hold the view that there is no single nation that is compelled into borrowing its money from another country. The World Bank gives both grants and loans. Such loans are even consessional sue to the fact that they are provided to nations that can not access global capital markets. Additionally, the loans given to both middle-income and poor countries are under the interest rates of market value. According to the World Bank allegations, it has the ability to assist countries in developing themselves through grants and money. This is because the money which is repaid on those loans can be provided to fund several other programs and projects (Adams, 1999).
Allegations of corruption, is another challenge facing the World Bank institution. The World Bank is working towards eliminating corruption from both within and outside its organization. The Bank has taken necessary steps to eliminate conflicts of interests and any probable corruption practices among its staff, owing to the fact that any given programs to help in preventing corruption globally needs to begin with the example of the best practices at home.
It is alleged that in the year 2005, the then president of the World Bank, Paul Wolfowitz made use of his position to influence grade and pay rise for his girlfriend, Shaha Riza. In order to avoid conflict of interest, Riza was required to leave the bank and re-assigned to the State Department where she worked with the daughter of Dick Cheney, Liz Cheney and remained on the payroll of the Bank. The salary of Riza was increased and finally reached $ 193,590 following subsequent increases. This raised a great controversy, which led to Paul Wolfowitz resigning on the 30th of June, the year 2007 (Salda, 1995).
Governance challenges are also worth noting. Critics as well as the supporters of World Bank have called for governance changes at both the IMF and World Bank. An extremely healthy set of well-founded recommendations have been provided by civil society groups. Additionally, the Bank and Boards have confirmed to the flaws and challenges facing leadership (World Bank, 2003). There are several recommendations and some of them will be highlighted below.
The first recommendation is that of having a clear rules and criteria for identification, nomination and selection of candidates who are qualified. The other essentiality includes explicit decision-making responsibilities and candidate qualifications. Some of particularly important qualifications are skills and management experience. Another recommendation is for the Board to oversee the process of selection whereby Executive Directors need to have information regarding candidates, their knowledge of the institution and credentials in a timely manner.
Governance positions should remain open to individuals or candidates from any given member nation. This would not only minimize corruption but it will also limit the United States control over the Bank. Additional it will limit the stronghold of Europe over the process of selection of International Monetary Fund Leadership. There should be an advisory group of eminent individuals to help in the process of selection. The groups should be made up of people who are conversant with objectives and goals of the World Bank as a financial institution.
These individuals should also have knowledge of the general structures as well as the operations of the Bank. The Knowledge should not necessarily be restricted to academia, international development, international affairs or finance and banking. Support to the group should be derived from the executive search skills. Balance within the groups should also be considered in the attempt to eliminate governance challenges.
Another recommendation is a channel that facilitates effective and smooth manner of communication in the course of selecting leaders. Candidates need to be given a change to air our and share their views and opinions with external shareholders and broader membership. There should be a more equitable Executive Board representation, particularly in borrowing countries. This implies that there members of the Board derived from borrowing countries should be increased. Despite the fact that member governments have brought up several proposals on how to effect this, the government of the United States has been against majority of those proposals.
Instituting double-majority voting for essential Bank choices would significantly improve governance at the Bank. In such a system, there would be the need for decisions made to secure support from the majority of members taking part in voting process. This would help in balancing the interests of a small number of large industrialized nations that have a high voting capability and the interests of many developing countries that have small sized economies. Accountability of the Executive Board and leadership is another recommendation that could help in solving governance challenges. It is advisable for leadership, inclusive of the Executive Board to take part in formal, terminal tests. The findings of the assessment should be available publicly.
Another fundamental aspect that could help solve governance challenges is transparency. Currently, the Board of Directors of the Bank functions behind closed doors. This implies that the level of transparency is extremely low. It is recommendable to publicly disclose substantive records pertaining to Board deliberations. There is a warrant to redactions of genuinely confidential information. It is only in the year 2005 that the World Bank started releasing minutes of skeletal meetings, which are adequate to give citizens information on their governments representation at the institution. It is essential for the media and the public to easily access the Board meetings just like is the case with popular legislatures globally and event at the Security Council of the United Nations.
The use of governance surveys have been known to support policy changes which in turn improves the level of governance while at the same time reducing corruption incidence. Reduction of corruption increases the quality of public services provided and their access. Currently, such surveys are conducted based on demand and they are executed by in-country partners in collaboration with technical assistants from the institute of World Bank as well as other Bank experts. Assistance from the Bank is not connected to any given conditionality or loan.
The whole process is governed and supervised by a collaboration of the governments of the requesting countries as well as a civil society partners. The collation should be willing to conduct the process in an inclusive and transparent manner. Surveys are given based on a given country private statistics in order to ensure confidentiality of the respondents. The entire survey components are designed in such a manner that they can improve the ability of a country to utilize survey methods in monitoring the performance of the public sector as well s the participatory role of the government in policy reform.
Conclusion
The World Bank is a financial institution whose key goal is poverty reduction. It provides grants and loans to under-developed and poor countries so that they could fund approved projects. This institution is made up of several units including the corporate secretariat, external affairs human resources, among other units. Despite the fact that the institution’s mandate of poverty reduction seems salient, there are some challenges that it faces. Financial challenges, operational challenges and governance challenges are the main hurdles. There have been allegations of inherent corruption in the World Bank institution. Transparency is the main recommendation and step towards dealing with corruption and governance challenges.
References
Adams, M. M. (1999). The World Bank; new agendas in a changing world. Routledge
Gilbert, C. L., & Vines, D. (2000). World Bank; structure and policies. Cambridge University Press
Marshall, K. (2008). The World Bank; from reconstruction to development to equity. Taylor and Francis
Salda, A. C. M. (1995). The World Bank. Transaction Publishers
World Bank (2003). A guide to the World Bank. World Bank Publications
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