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International Financial and

Economic Organizations

GEED 151

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The World Bank

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The World Bank (WB)

• The World Bank is a vital source of financial and technical assistance to developing countries around the world.

• WB is not a bank in the common sense. • WB is 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

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The World Bank (WB)• WB mission is to

– Reduce poverty in the globe– Improve the living standard

• The IBRD focuses on middle income and creditworthy poor countries.

• IDA focuses on the poorest countries in the world.

• WB provides low-interest loans, interest-free credit and grants to developing countries

• These loans are for education, health, infrastructure, communications and many other purposes.

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The World Bank (WB)

• WB focuses on achievement of the Millennium Development Goals that call for the elimination of poverty and sustained development.

• The goals provide us with targets and yardsticks for measuring results.

• WB mission is to help developing countries and their people reach the goals by working with Bank partners to alleviate poverty.

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The World Bank (WB)• This is done by

– concentrating on building the climate for investment, – jobs and – sustainable growth.

• This will help economies will grow• By investing in and empowering poor people to

participate in development.

• Home WorkHome Work

– Find a World Bank based project in Find a World Bank based project in your country.your country.

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Developing Economies To Grow• Building Capacity

– Strengthen their governments and educate their government officials

• Create Infrastructure– Implement legal and judicial systems that encourage business,

protect individual and property rights, and honor contracts

• Develop financial systems– Support small business from micro credit to financing larger

corporate ventures

• Combat corruptions– There is not much that can be done that is effective

• If these can be achieved, businesses will be attracted, jobs created and economy will grow.

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How is World Bank Run?

• The World Bank is like a cooperative, where its 184 member countries are shareholders. The shareholders are represented by a Board of Governors, who are the ultimate policy makers at the World Bank.

• The governors are member countries' ministers of finance or ministers of development.

• They meet once a year at the Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund.

• Because the governors only meet annually, they delegate specific duties to 24 Executive Directors, who work on-site at the bank.

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How is World Bank Run?

• The five largest shareholders, France, Germany, Japan, the United Kingdom and the United States appoint an executive director,

• The other member countries are represented by 19 executive directors.

• By tradition, the bank president is national of and is nominated by the largest shareholder in the bank, the United States.

• The President is elected by the Board of Governors for a five-year, renewable term.

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How is World Bank Run?

• The Executive Directors make up the Boards of Directors of the World Bank.

• They normally meet at least twice a week to oversee the bank's business, – including approval of loans and – Approve guarantees, – new policies, – the administrative budget, – country assistance strategies and – borrowing and financial decisions.

• The World Bank operates day-to-day under the leadership and direction of the president, management and senior staff, and the vice presidents in charge of regions, sectors, networks and functions

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Other Associations

• In addition to the International Bank for Reconstruction and Development and the International Development Association, three other institutions are closely associated with the World Bank:

• the International Finance Corporation (IFC), • the Multilateral Investment Guarantee Agency (MIGA),

and • the

International Centre for Settlement of Investment Disputes (ICSID).

• All five of these institutions together make up the World Bank Group.

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Other Associations

• he World Bank's two closely affiliated entities—the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)—

• provide low or no interest loans and grants to countries that have unfavorable or no access to international credit markets.

• Unlike other financial institutions, WB does not operate for profit. • The IBRD is market-based, and we use our high credit rating to

pass the low interest we pay for money on to our borrowers—developing countries.

• The WB pay for our own operating costs, since we don’t look to outside sources to furnish funds for overhead.

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Where Does the Money Come from to Operate the World Bank

• IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in the world's financial markets.

• The greater proportion of its income comes from lending out its own capital.

• This capital consists of reserves built up over the years and money paid in from the bank's 184 member country shareholders.

• IBRD’s income also pays for World Bank operating expenses and has contributed to IDA and debt relief.

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Where Does the Money Come from to Operate the World Bank

• IDA is the world's largest source of interest-free loans and grant assistance to the poorest countries.

• This source is replenished every three years by 40 donor countries.

• Additional funds are regenerated through repayments of – loan principal on 35-to-40-year, – no-interest loans, which are then available for re-

lending.• IDA accounts for nearly 40% of our lending

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How Do we use the Funds to Carry out our Mission

• Types of Loans• LoansThrough the IBRD and IDA, we offer two basic types of loans

and credits:• investment loans• Investment loans are made to countries for goods, works and

services in support of economic and social development projects in a broad range of economic and social sectors.

• development policy loans. • Development policy loans (formerly known as adjustment loans)

provide quick-disbursing financing to support countries’ policy and institutional reforms.

• Each borrower’s project proposal is assessed to ensure that the project is economically, financially, socially and environmentally sound. During loan negotiations, the bank and borrower agree on the development objectives, outputs, performance indicators and implementation plan, as well as a loan disbursement schedule.

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How Do we use the Funds to Carry out our Mission

• WB staff supervise the implementation of each loan and evaluate its results, the borrower implements the project or program according to the agreed terms.

• Nearly 30% of our staff is based in some 100 country offices worldwide,

• Three-fourths of outstanding loans are managed by country directors located away from the World Bank offices in Washington.

• IDA long term loans (credits) are interest free but do carry a small service charge of 0.75 percent on funds paid out. IDA commitment fees range from zero to 0.5 percent on un-disbursed credit balances; for FY06 commitment fees have been set at 0.30 percent. For complete information about IBRD financial products, services, lending rates and charges, please visit the World Bank Treasury . Treasury is at the heart of IBRD's borrowing and lending operations and also performs treasury functions for other members of the World Bank Group.

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How Do we use the Funds to Carry out our Mission

• Grants

• Grants are designed to facilitate development projects by encouraging innovation, co-operation between organizations and local stakeholders’ participation in projects.

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How Do we use the Funds to Carry out our Mission

• IDA grants have been used to:– Relieve the debt burden of heavily indebted poor

countries– Improve sanitation and water supplies– Support vaccination and immunization programs to

reduce the incidence of communicable diseases like malaria

– Combat the HIV/AIDS pandemic– Support civil society organizations– Create initiatives to cut the emission of greenhouse

gasses

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Analytical and Advisory Services

• WB’s roles is to provide analysis, advice and information to our member countries

• This is done to make sure each country can deliver the lasting economic and social improvements their people need.

• This is done by• through economic research on broad issues such as the

environment, poverty, trade and globalization and • through country-specific economic and sector work,• evaluate a country's economic prospects by examining

its banking systems and financial markets, • By also examining trade, infrastructure, poverty and

social safety net issues.

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Analytical and Advisory Services• WB draw upon the resources of our knowledge

bank to educate clients.• This will help them to equip themselves to solve

their development problems and promote economic growth.

• By knowledge bank we mean the wealth of contacts, knowledge, information and experience we've acquired over the years, country by country and project by project, in our development work.

• Our ultimate aim is to encourage the knowledge revolution in developing countries.

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Capacity Building

• Another core bank function is to increase the capabilities of:– It own stuff– WB partners– People in developig countries

• This is done to help them to acquire the knowledge and skills to:– they need to provide technical assistance, – improve government performance and delivery of

services, – sustain poverty reduction programs.

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Capacity Building

• Linkages to knowledge-sharing networks such as these have been set up by the bank to address the vast needs for information and dialogue about development:

• Advisory Services and Ask Us help desks make information available by topic via telephone, fax, email and the web. There are more than 25 advisory services at the bank.

• Staff members who respond to inquiries add value to the work of our own staff, clients and partners by responding quickly to their knowledge needs. Often, they are the first and possibly the only contact the public at large and the people in developing countries have with the World Bank.

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Capacity Building

• Global Development Learning Network: is an extensive network of distance learning centers that uses advanced information and communications technologies to connect people working in development around the world.

• World Bank Institute Global and Regional Programs bring together leading development practitioners online and face-to-face to exchange experiences and to develop skills.

• B-SPAN webcasting service is an Internet-based broadcasting station that presents World Bank seminars, workshops and conferences on sustainable development and poverty reduction.

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What is World Bank Now?• At any given moment in locations around the globe,

people are engaged in development projects designed to improve living standards and reduce poverty.

• Last year, the World Bank provided $23.6 billion for 279 projects in developing countries worldwide, with our financial and/or technical expertise aimed at helping those countries reduce poverty.

• The bank is currently involved in more than 1,800 projects in virtually every sector and developing country.

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What is World Bank Now?

• The projects are as diverse as – providing micro-credit in Bosnia and

Herzegovina, – raising AIDS-prevention awareness in Guinea, – supporting education of girls in Bangladesh,

improving health care delivery in Mexico, and – helping East Timor rebuild upon

independence and – India rebuild Gujarat after a devastating

earthquake.

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What is World Bank Now?• There are more than 63,000 donor-funded development projects

worldwide, each governed by countless demands, guidelines and procedures designed to protect the project and ensure that aid gets to the poor.

• Experience shows that capacity in developing countries can be improved and strengthened quickly when donors better coordinate their activities and harmonize their procedures.

The World Bank works with other – international institutions and donors, – the private sector, – civil society and – professional and academic associations

• to improve the coordination of aid policies and practices in countries, at the regional level and at the global level.

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Summary• Since inception in 1944, the World Bank has expanded

from a single institution to a closely associated group of five development institutions. Our mission evolved from the International Bank for Reconstruction and Development (IBRD) as facilitator of post-war reconstruction and development to the present day mandate of worldwide poverty alleviation in conjunction with our affiliate, the International Development Association.

• Once we had a homogeneous staff of engineers and financial analysts, based solely in Washington, DC. Today, we have a multidisciplinary and diverse staff that includes economists, public policy experts, sector experts and social scientists, and 30% of our staff is now based in country offices.

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Summary

• Reconstruction remains an important focus of our work, given the natural disasters and post conflict rehabilitation needs that affect developing and transition economies. We have, however, broadened our portfolio's focus to include social sector lending projects, poverty alleviation, debt relief and good governance. At today's World Bank, we have sharpened our focus on poverty reduction as the overarching goal of all our work.

• For more on the world bank visit:– www.worldbank.org