WORLD BANK

Tipology : Encyclopedia

Abstract
The World Bank or Bank for Reconstruction and Development (IBRD) was established in 1944 after the Bretton Woods Conference with the aim of becoming, together with the International Monetary Fund (IMF), one of the International Financial Institutions of the new economic structure created after World War II. The WB is also commonly referred to as the World Bank Group. Initially, the WB's objectives were the reconstruction of war-torn countries and later became economic development and assistance to developing countries through the financing of specific projects. The WB then focused its interventions on issues such as international financial assistance, social capital development, good governance, private sector growth, and the financing of the public budget of developing countries.

At the Bretton Woods Monetary and Financial Conference (1944), the decision was taken to create two institutions with distinct and in some ways complementary mandates. The aim of the Conference was the reorganisation of the international monetary system for a new monetary cooperation that would stimulate trade and growth in the world economy. Thus, in 1944, the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), the core of today's World Bank Group, were born. The IBRD was assigned the task of granting long-term financing for reconstruction in the countries involved in the Second World War and development in its member states. Over the years, as the economic, political and social landscape has changed, the Bank has also transformed, becoming the leading international organisation for development support and poverty reduction and, to this end, since 1960 has been joined by the International Development Association (IDA) set up to promote economic development, increase productivity and raise living standards in the world's less advanced areas.
The IBRD began its activities in June 1946 with the aim of rebuilding post-war economies, as stated in Article 1 of its Statute, however, the amount of resources needed to achieve this aim turned out to be greater than originally planned. Thus it was that, in June 1947, the US government's decision was announced to initiate a financial aid plan for Europe (European Recovery Program - ERP better known as the Marshall Plan) with the aim of rebuilding its capitalist structure. The European countries were asked to draw up a programme defining the common needs for achieving the reconstruction goals; this programme was used as the starting point for the conference held in Paris in March-April 1948 at which the European Organisation for Economic Cooperation (OECE) was established. The OECE was thus entrusted with the main task of carrying out the reconstruction of Europe through the best use of American funding; the attribution of this role resulted in the progressive abandonment by the IBRD of its commitment to reconstruction in favour of the expansion of production capacities and the improvement of the living conditions of Developing Countries (DCs), which were the elements characterising Article 1 of the Statute. The possibility of promoting foreign private investment by providing guarantees or by participating directly in loans and investments constitutes the fundamental instrument at the Bank's disposal to fulfil its mandate. Added to this is the possibility of promoting international trade, aimed at developing the productive resources of member countries, with positive effects on their productivity levels, living standards and working conditions. Loans and guarantees are granted for the implementation of the most useful and urgent projects in the international arena, regardless of their size. Finally, given the delicate historical moment, the Organisation should have encouraged the transition from a war economy to a peace economy.

In particular, Art. 1 of the Statute states that: the purposes of the Bank are:
(i) to contribute to the reconstruction and development of the territories of member countries by facilitating the investment of capital for productive purposes, including the rehabilitation of economies destroyed or damaged by war, the reconversion of productive settlements to the necessities of peace, and by stimulating the development of productive structures in less developed countries;
(ii) to promote foreign private investment through the provision of guarantees or through participation in loans and other investments made by private investors; where private capital is not available on reasonable terms, by supplementing private investment with the provision of finance for productive purposes and by the provision of equity, raised funds and other own resources on reasonable terms;
(iii) To promote the balanced and long-term development of international trade and the
maintenance of equilibrium in balances of payments by encouraging international investment for the development of productive resources in member countries, thereby assisting in the increase of productivity, living standards and working conditions in the territories of member countries;
(iv) to organise loans made or guarantees given in connection with international loans through other channels in such a way that the most useful and urgent projects, however large or small, are dealt with first;
(v) to conduct its operations with due regard to the effects of international investment on the conditions of business in the territories of member countries and, in the immediate post-war period, to foster a smooth transition from a war economy to a peace economy.

The Bank shall be guided in all its decisions by the objectives set out herein.

1. The projects financed by the WB
The IBRD's activities were initially geared towards the implementation of development projects in the creation of infrastructure and, in most cases, in the energy and transport sectors, while sectors such as health, education and access to water resources were not considered. The Organisation's priority objective was therefore to bridge the gap between the most industrialised and the least developed economies through the financing of those projects in the utilities sector, which were considered to be deferred investments and in which private investors showed little interest. The financing of these projects was later accompanied by the provision of technical assistance for their preparation and implementation. In order to achieve full development and better performance of the lagging economies, however, support from the private sector was needed in addition to public intervention. The need therefore arose for a new institution, complementary to the IBRD, that would stimulate investments by private companies in other sectors. In 1956, therefore, the International Finance Corporation (IFC)¹ was established to promote the establishment of private productive enterprises in the less developed areas of member countries.
The Bank's interest in offering financial resources has always focused not on the outcome of the specific project, but on the overall performance of the beneficiary country. Especially following the change of the IBRD's role to "development agency", there has been an evolution in the offering of loans intended to provide concrete aid to poorer member countries, with an eye not only on the economic results, but also on the social and cultural effects of the investments. Today, the World Bank plays an active role in all phases of the project cycle from the identification of the intervention, to finding the resources for financing, to its implementation and final evaluation.

2. The World Bank Group
The World Bank (Acr. WB) is made up of the International Bank for Reconstruction and Development and the International Development Association, these institutions are entrusted with different roles, but equally oriented towards achieving global and sustainable development. The WB cannot be considered a bank in the ordinary sense of the term, as it is made up of international development institutions and joined by the International Centre for Conflict Resolution (ICSID), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), forming the World Bank Group.
The International Bank for Reconstruction and Development (IBRD) grants credits to LDCs for public and private investments and finances its activities through the sale of its AAA-rated shares on the financial markets. IBRD's capital is composed of the shares reflecting the economic importance of its 186 member countries and, to a greater extent, of external, public and private funding.
The International Development Association (IDA) has been working alongside the IBRD to combat poverty since 1960 and has 169 member countries². Its activities concern the granting of interest-free loans, on more favourable terms than those of the IBRD, to countries with annual per capita income below a certain level³ IDA finances projects aimed at supporting economic growth and reducing inequality. IDA and IBRD, although legally and financially distinct, carry out their activities through the same staff, are based in the United States in Washington, DC and evaluate projects and programmes according to the same criteria. In particular, IDA offers financial assistance to more than 70 developing countries worldwide, of which 39 are in Africa, by granting interest-free loans to be repaid within 40 years after they are obtained, with further possible extensions of up to 10 years. Since its inception, it has granted credits totalling USD 193 billion, about USD 10 billion a year, of which about 50 per cent in the African continent.
The International Finance Corporation (IFC) was established in 1956 to contribute to the fight against poverty and the improvement of the living conditions of populations by granting loans to entities without any state guarantees.
The agency consists of 181 shareholder countries⁴, formerly members of the IBRD, and presents itself as both a multilateral development bank and an investment bank. In particular, the IFC's main objectives are to provide access to credit to companies operating in regions excluded from the private capital market, the provision of long-term loans, the offer of risk management products and technical assistance. The IFC grants loans of up to 25 per cent of the total project cost, up to a maximum of USD 100 million, to support small and medium-sized enterprises, privatisation of state-owned enterprises and private investments in infrastructure, tourism, health and education.
The International Centre for Settlement of Investment Disputes (ICSID) was established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States and consists of 144 member states. The fundamental objective of this autonomous international institution is to remove the major impediments to the international flow of private investment due to non-commercial risks and the absence of specific dispute settlement arrangements.
The Multilateral Investment Guarantee Agency (MIGA), created in 1988 with the aim of promoting private foreign investment in developing countries, offers insurance, promotion and legal assistance services on investments. In particular, the agency grants guarantees to foreign investors against non-commercial risks such as transfer restrictions, expropriations, and termination of contracts. In addition, MIGA offers guarantees to member states only for projects in developing countries, which are also members, with a maximum coverage of equity investments of 90 per cent and debts of 95 per cent and a duration of up to 15 years. The guarantee generally lasts up to 15 years, can be extended up to 20 years in special cases, and the investor is given the option to cancel it after three years.

3. Organisational Structure
Each country is a member of the World Bank as a capital subscriber, thus a shareholder of the institution. Each country is represented on the Board of Governors, which is entrusted with decision-making powers, such as setting strategies, admission and suspension of member countries and capital changes. The Board consists of a Governor (Governor) and his Alternate Governor appointed by the member states⁵ and meets annually. In the event that the state, in addition to being a member of the Bank, is also a member of the IFC and IDA, the Governor and his Alternate are ex-officio members of the Board of Governors of these agencies⁶ Specific matters of urgent discussion are delegated to the Board of Directors, a board of 24 Executive Directors, 5 of whom are appointed by the Bank's largest shareholders, France, Germany, Japan Great Britain and the United States. The Executive Directors meet twice a week to approve loans and guarantees, the administrative budget, and the definition of financial and assistance strategies for individual countries.
The President of the World Bank, currently Robert B. Zoellick⁷, is elected by the Board of Governors every five years, is responsible for the management of the entire institution and chairs the meetings of the Board of Directors. This position has always been held by a person of US origin, as the United States subscribes the largest share of the Bank's capital.
The World Bank's organisational structure also includes the Inspection Panel, an independent body whose task is to oversee compliance with the Bank's mandate and policies by initiating investigations into alleged violations of internal procedures in the execution of financed projects.

¹ Together with the International Development Association (IDA) established in 1960, the International Centre for Settlement of Investment Disputes (ICSID) established in 1966 and the Multilateral Investment Guarantee Agency (MIGA) established in 1988, the International Finance Association is part of the World Bank Group.
² Figure updated in July 2009. According to the Articles of Agreement of the IBRD, to become a World Bank member, a country must already be a member of the International Monetary Fund (IMF). Furthermore, to join IDA, IFA and MIGA, one must already be a member of the IBRD.
³ The per capita income threshold level is set by the IDA each year. In fiscal year 2008 (1 July 2007 to 30 June 2008) it was USD 1,065 per capita and was raised to USD 1,095 in 2009.
⁴ Data as of 2009. To become a member of the IFC, a country must:
- be a member of the IBRD;
- have accepted and signed the IFC Articles of Agreement;
- have deposited with the World Bank Group Secretariat the deed of acceptance of the IFC Articles of Agreement.
The member states of the IFC also determine the policy of the institution and approve the amount of resources offered in the form of loans or equity for project financing collectively.
⁵ These positions are usually held, for a period of five years, by the Minister of Finance or the Governor of the Central Bank of the member state.
⁶ In the case of MIGA, the Governos and Alternate of each state are appointed and act separately.
⁷ President of the World Bank is Robert B. Zoellick.

Bibliography
ESPOSITO C., Istituzioni Economiche Internazionali e Governance Globale, G. Giappichelli Editore - Torino, 2009.
GAVIN M. and RODRIK  D., The World Bank in Historical Perspective, The America Economic Review, vol. 85, 1995.
KAPUR D., LEWIS J. P. and WEBB R., The World Bank. Its first Half Century, Vol. I, History, Vol. II, Perspectives, Brookings Institutions Press, 1997.
YOU J. Il., The Bretton Woods Institutions: Evolution, Reform and Change, D. Nayyar (ed.), Governing Globalization. Issues and Institutions, Oxford University Press, 2002.

Editors: Federica ALFANI and ASSONEBB (april 2025)

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