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Theories

The World Bank

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The World Bank was set up along with its sister organisation the IMF in Bretton Woods, New Hampshire in 1944 to rebuild international trade and capital markets following the destruction of the Second World War. Whilst the IMF was concerned with stabilising the international finance system through short term lending to those countries with balance of payments deficit, the World Bank's role was concerned with financing reconstruction and development through the construction of national infrastructure such as roads and dams. By supporting projects through funding, and providing technical assistance, the World Bank considered that it would bring about increases in productivity, output and incomes and self-sustaining economic growth.

The World Bank is comprised of two organisations, both concerned with lending money to finance development projects. They are:

1. The International Bank for Reconstruction and Development (IBRD)
   This IBRD lends money at commercial interest rates to governments or private firms guaranteed by their governments.
2. The International Development Association
   The IDA lends money called credits to the poorest countries on concessionary terms i.e. that the repayment periods are longer that the IBRD's loans and the loans are interest free. These are called soft loans.

Up until the 1970s much World Bank lending was targeted at projects primarily concerned with building energy and transportation infrastructure such as the construction of the Kariba Dam. The poor economic performance and continued lack of development of many of the countries that had received World Bank assistance resulted in a rethink of the approach of the IBRD and the IDA. The new approach involved identifying specific needs of regions within LDCs and invariably meant targeting smaller scale development projects often of a very diversified nature.

The intention was that such support would raise the incomes of smaller scale farmers and encourage food production. Private projects aimed at the tourist industry, education, water supply and health care have also been supported. However it prescribes water privatization and full cost recovery as conditions for its development and water and sanitation loans. The Bank claims that the private sector is best able to provide the financial resources and expertise needed to address these problems. The watchdog group Public Citizen accuses the World Bank of using its influence to provide new business opportunities for the global water corporations.

Since the 1980s many World Bank loans have, like the IMF, been tied to certain strict conditions laid down in structural adjustment programmes. It will only lend money if strict limits on public spending are met and the inflow of foreign aid is limited in order to keep inflation low. This prohibits much-needed government welfare and education spending and has led to the World Bank being criticised by ActionAid, among others, who accuse it of undermining the fight against HIV/Aids.

A recent report on aid effectiveness commissioned by the World Bank itself found that the real problem of this conditional aid is that the benefits of reform are sometimes defined more in terms of increased donor aid than improved economic performance. In Zambia privatisation of the mines and public sector reform have been pursued in order to fulfill IMF and World Bank demands rather than because these reforms are part of a domestically formulated development strategy. It stated that the World Bank's preoccupation with debt service has diverted resources and time away real economic development issues.

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Related Glossary Items:
Soft Loan
Productivity
IBRD
World Bank
Structural Adjustment Programmes

Related Theories:
Types of Aid