Under the terms of the Bretton Woods Agreement, also known as the United Nations Monetary and Financial Conference, the World Bank and International Monetary Fund (IMF) were established simultaneously.
In December 1945, both organizations were formally established. The World Bank and International Monetary Fund are also known as the Bretton Wood Twins. The only requirement for a country to join the World Bank is that it must be an IMF member (there are exceptions).
The World Bank, which has its headquarters in Washington, DC, has 189 members in total.
World Bank Group
The World Bank’s two institutions comprise IBRD and IDA whereas the World Bank Group consists of five organizations in total, all of which share a commitment to eradicating poverty, increasing shared prosperity, and promoting sustainable development. These 5 institutions are:
- IBRD- The International Bank for Reconstruction and Development
- IDA- The International Development Association
- IFC- The International Finance Corporation
- MIGA- The Multilateral Investment Guarantee Agency
- ICSID- The International Centre for Settlement of Investment Dispute
The International Bank for Reconstruction and Development (IBRD)
IBRD was founded as one of the Bretton Woods Institutions in 1944 to aid in the post-World War II reconstruction of Europe. While Europe’s economy quickly recovered and got back on track, IBRD changed its focus to other areas. The IBRD is now concentrating on middle-income and developing nations. Focusing on middle-income poorer nations was primarily done to encourage sustainable and equitable growth, reduce poverty, and deal with regional and international concerns.
IBRD offers middle-income and creditworthy poor countries loans and advice. The primary source of funding for IBRD is the world financial and capital markets. IBRD has had a AAA rating since 1959, which enables it to borrow money at an attractive rate on the capital market.
The International Bank for Reconstruction and Development (IBRD) lends money to middle- and low-income nations that have a good credit rating. There are 189 members who are a part of this World Bank branch.
The International Development Association (IDA)
IDA was created to provide aid to the world’s poorest countries. It was founded in 1960 and is a complement to the IBRD, the World Bank’s original lending section. The primary objective of IDA is to eradicate poverty through the provision of grants for programs and credits, which are interest-free loans. This IDA mechanism increases economic growth, lowers inequality, and enhances people’s quality of life.
The World Bank is made up of IDA and IBRD. In addition to their contribution to the IDA, each member country’s voting power in the World Bank is determined by its GDP (economic size).
The International Finance Corporation (IFC)
The largest global development organization dedicated exclusively to the private sector is the International Financial Corporation (IFC).
IFC supports sustainable growth in developing nations by funding investments, raising money in international financial markets, and offering government and providing commercial advisory services to governments and businesses.
The Multilateral Investment Guarantee Agency (MIGA)
MIGA was established in 1988 to encourage foreign direct investment in developing countries. It promotes economic expansion, lessens poverty, and enhances people’s quality of life. MIGA satisfies this mandate by providing investors and lenders with political risk insurance (guarantees).
The Multilateral Investment Guarantee Agency (MIGA) promotes foreign direct investment in underdeveloped nations.
The International Centre for Settlement of Investment Dispute (ICSID)
An international center for the resolution of investment disputes is known as ICSID. It offers international facilities for the mediation and arbitration of investment-related disputes.
Objectives of the World Bank
After World War II, the World Bank was established. So, the World Bank’s primary goal was to rebuild countries that had been damaged by conflict (Target Achieved).
To encourage the development of developing countries and to improve the level of living there.
To encourage long-term capital investment to ensure BOP equilibrium and balanced development of global trade.
They are encouraging investment in emerging nations. Along with offering support in terms of money, expertise, and technical assistance.
World Bank Lending Pattern
It often offers developing and LDC countries long-term loans with terms ranging from 25 to 30 years.
Frequently provides concessional loans, without conditions.
The bank may lend to member nations up to 20% of their share of paid-up capital.
Bank also provides loans to private investors who are members, on its own guarantee; however, private investors must first obtain permission from their domestic country. Banks impose service fees between 1% and 2% in such cases.
The World Bank itself determines the amount of loan service, interest rate, and terms and conditions.
Typically, banks provide loans for specific projects that have been properly presented to the bank by the member country.
World Bank’s Source of Funds
The issuance of bonds on the international financial market is the primary source of funding.
Share Capital—Subscribed by participating countries, i.e., based on a share of the member country’s GDP.
The office of the president is conventionally held by a citizen of the United States.
Every member nation appoints a governor and an alternate governor to serve on the Board of Governors. Typically, the Board of Governors meets once a year.
There are 24 directors on the Board of Executive Directors.
Reports Released by World Bank
- World Development Report
- International Debt Statistics
- Ease of Doing Business
- Report Global Economic Prospects
IMF and World Bank collaboration
Financial Industry Assessment Program (FSAP): assessing the strength and regulation of member countries’ financial systems. The Financial Industry Assessment Program (FSAP) assesses the benefits and drawbacks of a country’s financial sector and makes recommendations for how to proceed.
Debt Sustainability Framework (DSF): The Multilateral Debt Relief Initiative (MDRI) and the Heavily Indebted Poor Countries (HIPC) initiative both aim to lower the debt loads of the world’s poorest, most severely indebted countries. The Debt Sustainability Framework (DSF), developed by the IMF and World Bank, is used to jointly evaluate a country’s ability to pay its debts.
Joint Climate Change Policy Assessments (CCPA): As a pilot initiative, the IMF and the World Bank first unveiled Joint Climate Change Policy Assessments (CCPA) in 2017. These assessments cover preparation, macroeconomic impact, mitigation, adaptation, and finance strategies for small, vulnerable, and capacity-constrained countries.
The development agenda for 2030: As part of the 2030 Global Development Agenda, the Sustainable Development Goals (SDGs) replaced the Millennium Development Goals in 2015. (MDGs). The IMF and World Bank work together to support member countries in achieving the SDGs.
Article Written By: Priti Raj