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this document is about the world bankl
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STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 1
A PROJECT REPORT ON
ldquoWORLD BANKrdquo
SUBMITTED BY
TEJAS THORAT
FOR THE DEGREE OF
THE BACHELOR OF MANAGEMENT STUDIES
UNIVERSITY OF MUMBAI
UNDER THE GUIDANCE OF
PROF ANAMIKA
SIES COLLEGE of ARTS SCIENCE AND COMMERCE
NERUL NAVI MUMBAI ndash 400706
ACADEMIC YEAR 2012-2013
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 2
A PROJECT REPORT ON
ldquoWORLD BANKrdquo
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 3
CERTIFICATE
I Ms ANAMIKA hereby certify that TEJAS THORAT student of SIES COLLEGE
OF ARTS SCIENCE AND COMMERCE NERUL has completed the project on
WORLD BANK in the academic year 2012-2013
The information submitted in this project is true and original to best of my knowledge
___________ ____________________________ ___________
EXTERNAL PROJECT BMS CO-ORDINATOR PRINCIPLE
EXAMINER GUIDE
(Ms ANAMIKA) (Mrs NEERA (Mrs RITA
KUMAR) BASU)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 4
DECLARATION
I TEJAS THORATstudying in TYBMS of SIES COLLEGE OF ARTS SCIENCE
and COMMERCE NERUL hereby declare that I have successfully completed this project
on WORLD BANK in the year 2012-2013 as per the requirements of Mumbai University as
a part of Bachelor in Management Studies (BMS) program
The information presented through this project is true and original to the best of my
knowledge
Date
Place Navi Mumbai
TEJAS THORAT
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 5
ACKNOWLEDGEMENT
I TEJAS THORAT would take this opportunity to thank the University for providing me an
opportunity to study the concept of WORLD BANK This has been a huge learning
experience for me
With a great pleasure I take this opportunity to acknowledge people who have made this
project work possible
I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college
my colleagues and librarians and other people for providing their help as and when required
to complete this project
I would also like to thank my parents for the tremendous help they have given me without
which the project would have not been possible
TEJAS THORAT
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 6
INDEX
Sr No TITLE Page No
1 EXECUTIVE SUMMARY 7
2 OBJECTIVES OF THE STUDY 8
3 WORLD BANK HITORY 9-11
4 AFFILIATES OF THE WORLD
BANK
12-15
5 INTRODUCTION 16-18
6 OPERATIONS 19-23
7 MISSION OF THE WORLD BANK 24
8 STRATERGIES 25-29
9 LOANS 30-33
10 WORLD BANK AGENCIES 34-74
11 DIFFERENCE BETWEEN IMF AND
WORLD BANK
75
12 INDIA AND WORLD BANK 76
13 CHALLENGES 77-89
14 INDIA AND WORLD BANK
PARTNERSHIP
90-98
15 CONCLUSION 99
16 BIBILOGRAPHY 100
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 7
EXECUTIVE SUMMARY
To achieve sustainable growth and poverty reduction developing countries need strong
institutional capacity The World Bank devotes significant resources to building stronger
institutions and organizations
inclientcountries It helps build capacity through a variety of means including technical
assistance studies equipment and training This evaluation focuses on the efficacy of one
of the primary instruments for capacity buildingmdashtraining individuals so they are better able
to contribute to their countryrsquos development goals
The organizational context for implementation of knowledge and skills learned was a
secondimportant determinant of successful capacity
building through training
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 8
OBJECTIVE OF THE STUDY
1 To study how the World Bank helps in influencing the financial
market all over the globe
2 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
3 Topromote private investment by means of guarantee or participation in loans and
other investments made by private investors
4 To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balances of payments by encouraging international
investment
5 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 9
WORLD BANK HISTORY
Conceived during World War II at Breton Woods New Hampshire the World Bank initially
helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for
post-war reconstruction Reconstruction has remained an important focus of the Banks work
given the natural disasters humanitarian emergencies and post conflict rehabilitation needs
that affect developing and transition economies
Todays Bank however has sharpened its focus on poverty reduction as the overarching goal
of all its work It once had a homogeneous staff of engineers and financial analysts based
solely in Washington DC Today it has a multidisciplinary and diverse staff including
economists public policy experts sectorial experts and social scientists 40 percent of staff is
now based in country offices
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 10
BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 12
AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 13
(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 14
National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 15
INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 16
The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 17
The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 18
OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 19
Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 20
IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting service is an Internet-based broadcasting station that presents
World Bank seminars workshops and conferences on sustainable development and
poverty reduction
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 22
MISSION OF THE WORLD BANK
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 23
STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 24
issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 25
COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 26
COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 27
LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 28
Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 29
Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 30
Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 31
CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 32
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 33
The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
STUDY OF THE FUNCTIONING OF WORLD BANK
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 48
CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 2
A PROJECT REPORT ON
ldquoWORLD BANKrdquo
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 3
CERTIFICATE
I Ms ANAMIKA hereby certify that TEJAS THORAT student of SIES COLLEGE
OF ARTS SCIENCE AND COMMERCE NERUL has completed the project on
WORLD BANK in the academic year 2012-2013
The information submitted in this project is true and original to best of my knowledge
___________ ____________________________ ___________
EXTERNAL PROJECT BMS CO-ORDINATOR PRINCIPLE
EXAMINER GUIDE
(Ms ANAMIKA) (Mrs NEERA (Mrs RITA
KUMAR) BASU)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 4
DECLARATION
I TEJAS THORATstudying in TYBMS of SIES COLLEGE OF ARTS SCIENCE
and COMMERCE NERUL hereby declare that I have successfully completed this project
on WORLD BANK in the year 2012-2013 as per the requirements of Mumbai University as
a part of Bachelor in Management Studies (BMS) program
The information presented through this project is true and original to the best of my
knowledge
Date
Place Navi Mumbai
TEJAS THORAT
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 5
ACKNOWLEDGEMENT
I TEJAS THORAT would take this opportunity to thank the University for providing me an
opportunity to study the concept of WORLD BANK This has been a huge learning
experience for me
With a great pleasure I take this opportunity to acknowledge people who have made this
project work possible
I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college
my colleagues and librarians and other people for providing their help as and when required
to complete this project
I would also like to thank my parents for the tremendous help they have given me without
which the project would have not been possible
TEJAS THORAT
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 6
INDEX
Sr No TITLE Page No
1 EXECUTIVE SUMMARY 7
2 OBJECTIVES OF THE STUDY 8
3 WORLD BANK HITORY 9-11
4 AFFILIATES OF THE WORLD
BANK
12-15
5 INTRODUCTION 16-18
6 OPERATIONS 19-23
7 MISSION OF THE WORLD BANK 24
8 STRATERGIES 25-29
9 LOANS 30-33
10 WORLD BANK AGENCIES 34-74
11 DIFFERENCE BETWEEN IMF AND
WORLD BANK
75
12 INDIA AND WORLD BANK 76
13 CHALLENGES 77-89
14 INDIA AND WORLD BANK
PARTNERSHIP
90-98
15 CONCLUSION 99
16 BIBILOGRAPHY 100
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 7
EXECUTIVE SUMMARY
To achieve sustainable growth and poverty reduction developing countries need strong
institutional capacity The World Bank devotes significant resources to building stronger
institutions and organizations
inclientcountries It helps build capacity through a variety of means including technical
assistance studies equipment and training This evaluation focuses on the efficacy of one
of the primary instruments for capacity buildingmdashtraining individuals so they are better able
to contribute to their countryrsquos development goals
The organizational context for implementation of knowledge and skills learned was a
secondimportant determinant of successful capacity
building through training
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 8
OBJECTIVE OF THE STUDY
1 To study how the World Bank helps in influencing the financial
market all over the globe
2 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
3 Topromote private investment by means of guarantee or participation in loans and
other investments made by private investors
4 To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balances of payments by encouraging international
investment
5 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 9
WORLD BANK HISTORY
Conceived during World War II at Breton Woods New Hampshire the World Bank initially
helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for
post-war reconstruction Reconstruction has remained an important focus of the Banks work
given the natural disasters humanitarian emergencies and post conflict rehabilitation needs
that affect developing and transition economies
Todays Bank however has sharpened its focus on poverty reduction as the overarching goal
of all its work It once had a homogeneous staff of engineers and financial analysts based
solely in Washington DC Today it has a multidisciplinary and diverse staff including
economists public policy experts sectorial experts and social scientists 40 percent of staff is
now based in country offices
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 10
BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 12
AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 13
(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 14
National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
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INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 39
A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 3
CERTIFICATE
I Ms ANAMIKA hereby certify that TEJAS THORAT student of SIES COLLEGE
OF ARTS SCIENCE AND COMMERCE NERUL has completed the project on
WORLD BANK in the academic year 2012-2013
The information submitted in this project is true and original to best of my knowledge
___________ ____________________________ ___________
EXTERNAL PROJECT BMS CO-ORDINATOR PRINCIPLE
EXAMINER GUIDE
(Ms ANAMIKA) (Mrs NEERA (Mrs RITA
KUMAR) BASU)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 4
DECLARATION
I TEJAS THORATstudying in TYBMS of SIES COLLEGE OF ARTS SCIENCE
and COMMERCE NERUL hereby declare that I have successfully completed this project
on WORLD BANK in the year 2012-2013 as per the requirements of Mumbai University as
a part of Bachelor in Management Studies (BMS) program
The information presented through this project is true and original to the best of my
knowledge
Date
Place Navi Mumbai
TEJAS THORAT
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 5
ACKNOWLEDGEMENT
I TEJAS THORAT would take this opportunity to thank the University for providing me an
opportunity to study the concept of WORLD BANK This has been a huge learning
experience for me
With a great pleasure I take this opportunity to acknowledge people who have made this
project work possible
I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college
my colleagues and librarians and other people for providing their help as and when required
to complete this project
I would also like to thank my parents for the tremendous help they have given me without
which the project would have not been possible
TEJAS THORAT
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 6
INDEX
Sr No TITLE Page No
1 EXECUTIVE SUMMARY 7
2 OBJECTIVES OF THE STUDY 8
3 WORLD BANK HITORY 9-11
4 AFFILIATES OF THE WORLD
BANK
12-15
5 INTRODUCTION 16-18
6 OPERATIONS 19-23
7 MISSION OF THE WORLD BANK 24
8 STRATERGIES 25-29
9 LOANS 30-33
10 WORLD BANK AGENCIES 34-74
11 DIFFERENCE BETWEEN IMF AND
WORLD BANK
75
12 INDIA AND WORLD BANK 76
13 CHALLENGES 77-89
14 INDIA AND WORLD BANK
PARTNERSHIP
90-98
15 CONCLUSION 99
16 BIBILOGRAPHY 100
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 7
EXECUTIVE SUMMARY
To achieve sustainable growth and poverty reduction developing countries need strong
institutional capacity The World Bank devotes significant resources to building stronger
institutions and organizations
inclientcountries It helps build capacity through a variety of means including technical
assistance studies equipment and training This evaluation focuses on the efficacy of one
of the primary instruments for capacity buildingmdashtraining individuals so they are better able
to contribute to their countryrsquos development goals
The organizational context for implementation of knowledge and skills learned was a
secondimportant determinant of successful capacity
building through training
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 8
OBJECTIVE OF THE STUDY
1 To study how the World Bank helps in influencing the financial
market all over the globe
2 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
3 Topromote private investment by means of guarantee or participation in loans and
other investments made by private investors
4 To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balances of payments by encouraging international
investment
5 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 9
WORLD BANK HISTORY
Conceived during World War II at Breton Woods New Hampshire the World Bank initially
helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for
post-war reconstruction Reconstruction has remained an important focus of the Banks work
given the natural disasters humanitarian emergencies and post conflict rehabilitation needs
that affect developing and transition economies
Todays Bank however has sharpened its focus on poverty reduction as the overarching goal
of all its work It once had a homogeneous staff of engineers and financial analysts based
solely in Washington DC Today it has a multidisciplinary and diverse staff including
economists public policy experts sectorial experts and social scientists 40 percent of staff is
now based in country offices
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 10
BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 12
AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 13
(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 14
National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 15
INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 16
The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 17
The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 18
OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 19
Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 20
IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 4
DECLARATION
I TEJAS THORATstudying in TYBMS of SIES COLLEGE OF ARTS SCIENCE
and COMMERCE NERUL hereby declare that I have successfully completed this project
on WORLD BANK in the year 2012-2013 as per the requirements of Mumbai University as
a part of Bachelor in Management Studies (BMS) program
The information presented through this project is true and original to the best of my
knowledge
Date
Place Navi Mumbai
TEJAS THORAT
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 5
ACKNOWLEDGEMENT
I TEJAS THORAT would take this opportunity to thank the University for providing me an
opportunity to study the concept of WORLD BANK This has been a huge learning
experience for me
With a great pleasure I take this opportunity to acknowledge people who have made this
project work possible
I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college
my colleagues and librarians and other people for providing their help as and when required
to complete this project
I would also like to thank my parents for the tremendous help they have given me without
which the project would have not been possible
TEJAS THORAT
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 6
INDEX
Sr No TITLE Page No
1 EXECUTIVE SUMMARY 7
2 OBJECTIVES OF THE STUDY 8
3 WORLD BANK HITORY 9-11
4 AFFILIATES OF THE WORLD
BANK
12-15
5 INTRODUCTION 16-18
6 OPERATIONS 19-23
7 MISSION OF THE WORLD BANK 24
8 STRATERGIES 25-29
9 LOANS 30-33
10 WORLD BANK AGENCIES 34-74
11 DIFFERENCE BETWEEN IMF AND
WORLD BANK
75
12 INDIA AND WORLD BANK 76
13 CHALLENGES 77-89
14 INDIA AND WORLD BANK
PARTNERSHIP
90-98
15 CONCLUSION 99
16 BIBILOGRAPHY 100
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 7
EXECUTIVE SUMMARY
To achieve sustainable growth and poverty reduction developing countries need strong
institutional capacity The World Bank devotes significant resources to building stronger
institutions and organizations
inclientcountries It helps build capacity through a variety of means including technical
assistance studies equipment and training This evaluation focuses on the efficacy of one
of the primary instruments for capacity buildingmdashtraining individuals so they are better able
to contribute to their countryrsquos development goals
The organizational context for implementation of knowledge and skills learned was a
secondimportant determinant of successful capacity
building through training
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 8
OBJECTIVE OF THE STUDY
1 To study how the World Bank helps in influencing the financial
market all over the globe
2 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
3 Topromote private investment by means of guarantee or participation in loans and
other investments made by private investors
4 To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balances of payments by encouraging international
investment
5 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 9
WORLD BANK HISTORY
Conceived during World War II at Breton Woods New Hampshire the World Bank initially
helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for
post-war reconstruction Reconstruction has remained an important focus of the Banks work
given the natural disasters humanitarian emergencies and post conflict rehabilitation needs
that affect developing and transition economies
Todays Bank however has sharpened its focus on poverty reduction as the overarching goal
of all its work It once had a homogeneous staff of engineers and financial analysts based
solely in Washington DC Today it has a multidisciplinary and diverse staff including
economists public policy experts sectorial experts and social scientists 40 percent of staff is
now based in country offices
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 10
BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 12
AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 13
(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 14
National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 15
INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 16
The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 17
The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 18
OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 19
Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 20
IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting service is an Internet-based broadcasting station that presents
World Bank seminars workshops and conferences on sustainable development and
poverty reduction
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 22
MISSION OF THE WORLD BANK
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 23
STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 24
issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 25
COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 26
COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 27
LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 28
Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 29
Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 30
Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 62
CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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TYBMS SEM-V 63
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TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 5
ACKNOWLEDGEMENT
I TEJAS THORAT would take this opportunity to thank the University for providing me an
opportunity to study the concept of WORLD BANK This has been a huge learning
experience for me
With a great pleasure I take this opportunity to acknowledge people who have made this
project work possible
I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college
my colleagues and librarians and other people for providing their help as and when required
to complete this project
I would also like to thank my parents for the tremendous help they have given me without
which the project would have not been possible
TEJAS THORAT
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 6
INDEX
Sr No TITLE Page No
1 EXECUTIVE SUMMARY 7
2 OBJECTIVES OF THE STUDY 8
3 WORLD BANK HITORY 9-11
4 AFFILIATES OF THE WORLD
BANK
12-15
5 INTRODUCTION 16-18
6 OPERATIONS 19-23
7 MISSION OF THE WORLD BANK 24
8 STRATERGIES 25-29
9 LOANS 30-33
10 WORLD BANK AGENCIES 34-74
11 DIFFERENCE BETWEEN IMF AND
WORLD BANK
75
12 INDIA AND WORLD BANK 76
13 CHALLENGES 77-89
14 INDIA AND WORLD BANK
PARTNERSHIP
90-98
15 CONCLUSION 99
16 BIBILOGRAPHY 100
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 7
EXECUTIVE SUMMARY
To achieve sustainable growth and poverty reduction developing countries need strong
institutional capacity The World Bank devotes significant resources to building stronger
institutions and organizations
inclientcountries It helps build capacity through a variety of means including technical
assistance studies equipment and training This evaluation focuses on the efficacy of one
of the primary instruments for capacity buildingmdashtraining individuals so they are better able
to contribute to their countryrsquos development goals
The organizational context for implementation of knowledge and skills learned was a
secondimportant determinant of successful capacity
building through training
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 8
OBJECTIVE OF THE STUDY
1 To study how the World Bank helps in influencing the financial
market all over the globe
2 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
3 Topromote private investment by means of guarantee or participation in loans and
other investments made by private investors
4 To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balances of payments by encouraging international
investment
5 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 9
WORLD BANK HISTORY
Conceived during World War II at Breton Woods New Hampshire the World Bank initially
helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for
post-war reconstruction Reconstruction has remained an important focus of the Banks work
given the natural disasters humanitarian emergencies and post conflict rehabilitation needs
that affect developing and transition economies
Todays Bank however has sharpened its focus on poverty reduction as the overarching goal
of all its work It once had a homogeneous staff of engineers and financial analysts based
solely in Washington DC Today it has a multidisciplinary and diverse staff including
economists public policy experts sectorial experts and social scientists 40 percent of staff is
now based in country offices
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 10
BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 12
AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 13
(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
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National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
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INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 39
A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 6
INDEX
Sr No TITLE Page No
1 EXECUTIVE SUMMARY 7
2 OBJECTIVES OF THE STUDY 8
3 WORLD BANK HITORY 9-11
4 AFFILIATES OF THE WORLD
BANK
12-15
5 INTRODUCTION 16-18
6 OPERATIONS 19-23
7 MISSION OF THE WORLD BANK 24
8 STRATERGIES 25-29
9 LOANS 30-33
10 WORLD BANK AGENCIES 34-74
11 DIFFERENCE BETWEEN IMF AND
WORLD BANK
75
12 INDIA AND WORLD BANK 76
13 CHALLENGES 77-89
14 INDIA AND WORLD BANK
PARTNERSHIP
90-98
15 CONCLUSION 99
16 BIBILOGRAPHY 100
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 7
EXECUTIVE SUMMARY
To achieve sustainable growth and poverty reduction developing countries need strong
institutional capacity The World Bank devotes significant resources to building stronger
institutions and organizations
inclientcountries It helps build capacity through a variety of means including technical
assistance studies equipment and training This evaluation focuses on the efficacy of one
of the primary instruments for capacity buildingmdashtraining individuals so they are better able
to contribute to their countryrsquos development goals
The organizational context for implementation of knowledge and skills learned was a
secondimportant determinant of successful capacity
building through training
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 8
OBJECTIVE OF THE STUDY
1 To study how the World Bank helps in influencing the financial
market all over the globe
2 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
3 Topromote private investment by means of guarantee or participation in loans and
other investments made by private investors
4 To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balances of payments by encouraging international
investment
5 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 9
WORLD BANK HISTORY
Conceived during World War II at Breton Woods New Hampshire the World Bank initially
helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for
post-war reconstruction Reconstruction has remained an important focus of the Banks work
given the natural disasters humanitarian emergencies and post conflict rehabilitation needs
that affect developing and transition economies
Todays Bank however has sharpened its focus on poverty reduction as the overarching goal
of all its work It once had a homogeneous staff of engineers and financial analysts based
solely in Washington DC Today it has a multidisciplinary and diverse staff including
economists public policy experts sectorial experts and social scientists 40 percent of staff is
now based in country offices
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 10
BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 12
AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 13
(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 14
National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 15
INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 16
The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 17
The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 18
OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 19
Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 20
IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting service is an Internet-based broadcasting station that presents
World Bank seminars workshops and conferences on sustainable development and
poverty reduction
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 22
MISSION OF THE WORLD BANK
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 23
STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 51
GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 55
IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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EXECUTIVE SUMMARY
To achieve sustainable growth and poverty reduction developing countries need strong
institutional capacity The World Bank devotes significant resources to building stronger
institutions and organizations
inclientcountries It helps build capacity through a variety of means including technical
assistance studies equipment and training This evaluation focuses on the efficacy of one
of the primary instruments for capacity buildingmdashtraining individuals so they are better able
to contribute to their countryrsquos development goals
The organizational context for implementation of knowledge and skills learned was a
secondimportant determinant of successful capacity
building through training
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TYBMS SEM-V 8
OBJECTIVE OF THE STUDY
1 To study how the World Bank helps in influencing the financial
market all over the globe
2 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
3 Topromote private investment by means of guarantee or participation in loans and
other investments made by private investors
4 To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balances of payments by encouraging international
investment
5 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
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TYBMS SEM-V 9
WORLD BANK HISTORY
Conceived during World War II at Breton Woods New Hampshire the World Bank initially
helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for
post-war reconstruction Reconstruction has remained an important focus of the Banks work
given the natural disasters humanitarian emergencies and post conflict rehabilitation needs
that affect developing and transition economies
Todays Bank however has sharpened its focus on poverty reduction as the overarching goal
of all its work It once had a homogeneous staff of engineers and financial analysts based
solely in Washington DC Today it has a multidisciplinary and diverse staff including
economists public policy experts sectorial experts and social scientists 40 percent of staff is
now based in country offices
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BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
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AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
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(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
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National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
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INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
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TYBMS SEM-V 19
Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting 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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MISSION OF THE WORLD BANK
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TYBMS SEM-V 23
STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 24
issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 25
COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
STUDY OF THE FUNCTIONING OF WORLD BANK
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 29
Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 30
Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 31
CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 32
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TYBMS SEM-V 33
The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 57
National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 8
OBJECTIVE OF THE STUDY
1 To study how the World Bank helps in influencing the financial
market all over the globe
2 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
3 Topromote private investment by means of guarantee or participation in loans and
other investments made by private investors
4 To promote the long-range balanced growth of international trade and the
maintenance of equilibrium in balances of payments by encouraging international
investment
5 To assist in the reconstruction and development of territories of members by
facilitating the investment of capital for productive purpose
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 9
WORLD BANK HISTORY
Conceived during World War II at Breton Woods New Hampshire the World Bank initially
helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for
post-war reconstruction Reconstruction has remained an important focus of the Banks work
given the natural disasters humanitarian emergencies and post conflict rehabilitation needs
that affect developing and transition economies
Todays Bank however has sharpened its focus on poverty reduction as the overarching goal
of all its work It once had a homogeneous staff of engineers and financial analysts based
solely in Washington DC Today it has a multidisciplinary and diverse staff including
economists public policy experts sectorial experts and social scientists 40 percent of staff is
now based in country offices
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 10
BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 12
AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
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(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 14
National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 15
INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 16
The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 17
The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 39
A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 44
water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 9
WORLD BANK HISTORY
Conceived during World War II at Breton Woods New Hampshire the World Bank initially
helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for
post-war reconstruction Reconstruction has remained an important focus of the Banks work
given the natural disasters humanitarian emergencies and post conflict rehabilitation needs
that affect developing and transition economies
Todays Bank however has sharpened its focus on poverty reduction as the overarching goal
of all its work It once had a homogeneous staff of engineers and financial analysts based
solely in Washington DC Today it has a multidisciplinary and diverse staff including
economists public policy experts sectorial experts and social scientists 40 percent of staff is
now based in country offices
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BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
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AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
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(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 14
National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
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INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 19
Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
STUDY OF THE FUNCTIONING OF WORLD BANK
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting service is an Internet-based broadcasting station that presents
World Bank seminars workshops and conferences on sustainable development and
poverty reduction
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 22
MISSION OF THE WORLD BANK
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 23
STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 24
issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 25
COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 26
COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
STUDY OF THE FUNCTIONING OF WORLD BANK
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 28
Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 10
BRETTON WOODS CONFERENCE JULY 1-22 1944
World War II was still on D-Day took place less than one month before
International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war economic
depression had been the genesis of the Conference and the Fund proposal
The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt Development financing would come
later
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 11
It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 12
AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 13
(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 14
National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
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INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 39
A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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It was the Latin American countries which were principally responsible for the
emphasis on development
Soviet Union represented at Bretton Woods but did not subsequently ratify the
Articles of Agreement of the Bank or Fund
World Bank was the first multilateral development bank
STUDY OF THE FUNCTIONING OF WORLD BANK
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AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
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(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
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National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
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INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
STUDY OF THE FUNCTIONING OF WORLD BANK
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 19
Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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TYBMS SEM-V 20
IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting service is an Internet-based broadcasting station that presents
World Bank seminars workshops and conferences on sustainable development and
poverty reduction
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION OF THE WORLD BANK
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 23
STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 24
issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 25
COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 26
COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 27
LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 12
AFFILIATES OF THE WORLD BANK
(1) Economic Development Institute (EDI)
Established January 9 1956
Purpose Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems of
economic policy and with the planning and administration of development programs
(2) International Finance Corporation (IFC)
Established July 20 1956
Purpose Promote sustainable private sector development primarily by
Financing private sector projects located in the developing world
Helping private companies in the developing world mobilize financing in international
financial markets
Providing advice and technical assistance to businesses and governments
(3) International Development Association (IDA)
Established September 24 1960
Purpose Act as the World Bankrsquos concessional lending window It provides long-term
loans at zero interest to the poorest of the developing countries
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14 1966
Purpose Assist Contracting States and their nationals in settling by means of conciliation
or arbitration investment disputes between governments and foreign investors
(5) Operations Evaluation Unit
Established September 2 1970
Purpose Established by the President the Operations Evaluation Unit evaluates Bank
Group operations It is placed in the Programming and Budgeting Department
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 13
(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
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National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
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INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 39
A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19 1971
Purpose An informal association of public and private donors supporting a network of
international agricultural research centers
CGIAR convenes in Washington under chairmanship of the Bank but with its Technical
Advisory Group (TAG) headquartered at FAO Rome
(7) World Bank Staff Association
Established February 28 1972
Purpose Working Party of twelve established by the Provisional Delegate
Assembly to investigate various aspects of establishing a staff association Its
report recommended the formation of a staff association and outlined its functions objectives
and general structure
Constitution drafting committee of three established to draft a constitution and rules of
procedure
Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of
which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be
counted
Provisional Delegate Assembly first met on April 26 1971 two delegates from each
department assembly would decide whether or not there would be a staff association and if
so which form it would take
(8) World BankAdministrative Tribunal
Established July 1979
Purpose A judicate staff grievances
September 1978 Round Table Conference on Legal Rights composed of staff and
management representatives Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access to
an Administrative Tribunal
An Appeals Committee had been established in 1976 to help to adjudicate staff grievances
but its recommendations are not binding on the Bank
STUDY OF THE FUNCTIONING OF WORLD BANK
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National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
STUDY OF THE FUNCTIONING OF WORLD BANK
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INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
STUDY OF THE FUNCTIONING OF WORLD BANK
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
STUDY OF THE FUNCTIONING OF WORLD BANK
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
STUDY OF THE FUNCTIONING OF WORLD BANK
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
STUDY OF THE FUNCTIONING OF WORLD BANK
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting service is an Internet-based broadcasting station that presents
World Bank seminars workshops and conferences on sustainable development and
poverty reduction
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION OF THE WORLD BANK
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 23
STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 24
issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 25
COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 26
COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 27
LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 14
National courts have been reluctant to adjudicate grievances of staff against the BankStaff
Association played a significant role in the process of establishing the Administrative
TribunalMembers of the Administrative Tribunal are selected by the Executive Directors
from a list drawn up by the President of the Bank after due consultation
First session began July 1 1980 in London
(9) Multilateral Investment Guarantee Agency
Established April 12 1988
―The purpose of the Agency is not solely to provide investment insurance Insurance is the
main instrument of the Agency but will be used along with other instruments to create a
better investment environment based on mutual confidence between investors and their host
countries
(10)Inspection Panel
Established September 22 1993
Purpose The Inspection Panel is three-member non-judicial body created by the Board of
Executive Directors of IBRD and IDA to provide an independent forum to private citizens
who believe that their rights or interests have been or could be directly harmed by a project
financed by the Bank Affected people may bring their concerns to the attention of the Panel
by filing a Request for Inspection
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 15
INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 44
water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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INTRODUCTION
The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is
one of the worldrsquos largest sources of development assistance and it has extended assistance to
more than 100 developing economies bringing a mix of finance and ideas to improve living
standards and eliminate the worst forms of poverty For each of its clients the Bank works
with Government agencies nongovernmental organizations and the private sectors to
formulate assistance strategies Together with the separate International Monetary Fund the
World Bank organizations are often called the Bretton Woods institutions after Bretton
Woods New Hampshire where the United Nations Monetary and Financial Conference that
led to their establishment took place (1 July-22 July1944) The Bank came into formal
existence on 27 December1945 following international ratification of the Bretton Woods
agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947
($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank
to date)
The World Bank is a vital source of financial and technical assistance to developing countries
around the world It is not a bank in the common sense Since it was set up in 1944 as the
International Bank for Reconstruction and Development the number of member countries
increased sharply in the 1950s and 1960s when many countries became independent nations
As membership
Grew and their needs changed the World Bank expanded and is currently made up of five
different agencies
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The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
STUDY OF THE FUNCTIONING OF WORLD BANK
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting 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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TYBMS SEM-V 22
MISSION OF THE WORLD BANK
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TYBMS SEM-V 23
STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 24
issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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TYBMS SEM-V 25
COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 29
Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 30
Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
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TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 16
The World Bank Group consists of five closely associated institutions each institution
playing a distinct role in the mission to fight poverty and improve standard of living for the
people in the developing world The term World Bank
refers specifically to two of the five ie The International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) The other
institutions are The International Finance Corporation (IFC) The Multilateral Investment
Guarantee Agency (MIGA) and The International Centre for Settlement of Investment
Disputes (ICSID) While all five specialize in different aspects of development they use their
comparative advantages to work collaboratively towards the same overarching goal-poverty
reduction
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards The IBRD focuses on middle income and
creditworthy poor countries while IDA focuses on the poorest countries in the world
Together it provides low-interest loans interest-free credit and grants to developing countries
for education health infrastructure communications and many other purposes
The World Banks activities are focused on developing countries in fields such as human
development (eg education health) agriculture and rural development (eg irrigation rural
services) environmental protection (eg pollution reduction establishing and enforcing
regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg
anti-corruption legal institutions development) It provides loans at preferential rates to
member countries as well as grants to the poorest countries Loans or grants for specific
projects are often linked to wider policy changes in the sector or the economy
For example a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and to
implementation of new regulations to limit pollution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 17
The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 18
OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 19
Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 20
IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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The World Bank is one of the most highly-regarded financial institutions in the world
especially in the field of development economics and related research In addition World
Bank standards and methods have been adopted in many areas such as transparent procedures
for competitive procurement and environmental standards for project evaluation World Bank
also engages in funding the education of promising young people from developing countries
through its graduate scholarship programs
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 34
of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 39
A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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OPERATIONS
The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA)mdashprovide
low or no interest loans and grants to countries that have unfavorable or no access to
international credit markets Unlike other financial institutions we do 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 borrowersmdashdeveloping countries We pay for our own operating costs
since we donrsquot look to outside sources to furnish funds for overhead
I FUND GENERATION
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in
the worlds financial markets While IBRD earns a small margin on this lending 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 banks 184 member country
shareholders IBRDrsquos income also pays for World Bank operating expenses and has
contributed to IDA and debt relief
IDA the worlds largest source of interest-free loans and grant assistance to the poorest
countries 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
II LOANS
Through the IBRD and IDA we offer two basic types of loans and credits investment loans
and development policy 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 (formerly known as adjustment
loans) provide quick-disbursing financing to support countriesrsquo policy and institutional
reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 30
Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 57
National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 19
Each borrowerrsquos 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 While we supervise the
implementation of each loan and evaluate its results the borrower implements the project or
program according to the agreed terms As 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 075
percent on funds paid out IDA commitment fees range from zero to 05 percent on un-
disbursed credit balances for FY06 commitment fees have been set at 030 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 IBRDs borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group
III GRANTS
Grants are designed to facilitate development projects by encouraging innovation co-
operation between organizations and local stakeholdersrsquo participation in projects In recent
years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave
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 HIVAIDS pandemic
Support civil society organizations
Create initiatives to cut the emission of greenhouse gasses
STUDY OF THE FUNCTIONING OF WORLD BANK
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IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 21
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
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 web casting service is an Internet-based broadcasting station that presents
World Bank seminars workshops and conferences on sustainable development and
poverty reduction
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION OF THE WORLD BANK
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 23
STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 24
issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 25
COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 26
COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 27
LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 56
MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 20
IV ANALYTIC AND ADVISORY SERVICES
While we are best known as a financier another of our roles is to provide analysis advice
and information to our member countries so they can deliver the lasting economic and social
improvements their people need We do this in several ways through economic research on
broad issues such as the environment poverty trade and globalization and through country-
specific economic and sector work where we evaluate a countrys economic prospects by
examining its banking systems and financial markets as well as trade infrastructure poverty
and social safety net issues for example
We also draw upon the resources of our knowledge bank to educate clients so they can equip
themselves to solve their development problems and promote
Economic growth By knowledge bank we mean the wealth of contacts knowledge
information and experience weve 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
These are only some of the ways our analyses advice and knowledge are made
available to our client countries their government and development professionals and the
public
Poverty Assessment
Social and Structural Review
Public Expenditure Review
Sector Reports
Country Economic Memoranda
Knowledge Sharing
V CAPACITYBUILDING
Another core bank function is to increase the capabilities of our own staff our partners and
the people in developing countriesmdashto help them acquire the knowledge and skills they need
to provide technical assistance improve government performance and delivery of services
promote economic growth and sustain poverty reduction programs Linkages to knowledge-
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting 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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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 55
IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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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
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 web casting service is an Internet-based broadcasting station that presents
World Bank seminars workshops and conferences on sustainable development and
poverty reduction
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
STUDY OF THE FUNCTIONING OF WORLD BANK
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION OF THE WORLD BANK
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 44
water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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STRATEGIES
The World Bank continually strives to improve the delivery of its aid based on the lessons
learned from experience Recognizing that in virtually all successful past assistance efforts
the country itself was driving the agenda the Bank strives to help governments take the lead
in preparing and implementing development strategies to shape the future of their countries
This is the philosophy behind the Banks Comprehensive Development Framework which
since 1999 has guided the way its assistance has been delivered to developing countries The
four main principles of the CDF are
Development strategies should be comprehensive and shaped by a long-term vision
Development goals and strategies should be owned by the country based on local
stakeholder participation in shaping them
Countries receiving assistance should lead the management and coordination of aid
programs through stakeholder partnerships and
Development performance should be evaluated through measurable results on the
ground in order to adjust the strategy to outcomes and a changing world
For low-income countries the Banks plans for assistance are based on Poverty
ReductionStrategies In preparing these strategies the government consults a wide cross-
section of local groups and combines this with an extensive analysis of the countrys poverty
and economic situation The process is designed to develop country ownership of the
strategy as well as to foster greater openness in policymaking and increase government
commitment to policies After the Consultations the government identifies the countrys
priorities and targets for reducing poverty over a three to five year period The Bank and
other aid agencies then align their assistance efforts with the countrys own strategy - a
proven way of boosting aid effectiveness
The Banks main vehicle for making strategic choices about the program design and resource
allocations for individual countries is its Country Assistance Strategy which since July
2002 has been based on PRSPs when dealing with low-income countries In producing its
Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic
and social situation in consultation with the government Studies may be conducted into
STUDY OF THE FUNCTIONING OF WORLD BANK
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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issues such as poverty levels agriculture the health and education systems environmental
policies government procurement or financial management
Additionally the Bank has recently reviewed its role activities and effectiveness and the
development needs of countries in specific circumstances Low Income Countries Under
Stress Middle-Income Countries (MICs) and Small States
STUDY OF THE FUNCTIONING OF WORLD BANK
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
STUDY OF THE FUNCTIONING OF WORLD BANK
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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COMPREHENSIVE DEVELOPMENT FRAMEWORK
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction including the provision of external assistance
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance
country ownership and the achievement of the Millennium Development Goals We intend to
continue to direct the energy of our institutions to make this a reality
Eliminating poverty reducing inequity and improving opportunity for people in low- and
middle-income countries are the World Bank Groups central objectives The CDF is an
approach by which countries can achieve these objectives It emphasizes the interdependence
of all elements of developmentmdashsocial structural human governance environmental
economic and financial
STUDY OF THE FUNCTIONING OF WORLD BANK
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
STUDY OF THE FUNCTIONING OF WORLD BANK
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 34
of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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COUNTRYASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the
International Development Association (IDA) and the
International Bank for Reconstruction and Development(IBRD) The CAS takes as its
starting point the countryrsquos own vision for its development as defined in a Poverty Reduction
Strategy Paper or other country-owned process Oriented toward results the CAS is
developed in consultation with country authorities civil society organizations development
partners and other stakeholders The purpose of the CAS is to set out a selective program of
Bank Group support linked to the countryrsquos development strategy and based on the Bank
Grouprsquos comparative advantage in the context of other donor activities CASs are designed to
promote collaboration and coordination among development partners in a country
The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the
government andor other partnersmdashof the development challenges facing the country
including the incidence trends and causes of poverty The CAS identifies the key areas
where the Bank Groups assistance
Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into
account the performance of the Bankrsquos portfolio in the country the countryrsquos
creditworthiness state of institutional development implementation capacity governance
and other sectorial and cross-cutting issues From this assessment the level and composition
of Bank Group financial advisory andor technical support to the country is determined To
track implementation of the CAS program the CAS is increasingly results-focused It
includes a framework of clear targets and indicators to monitor Bank Group and country
performance in achieving stated outcomes
STUDY OF THE FUNCTIONING OF WORLD BANK
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LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 30
Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 34
of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 27
LOANS
HOW LOANS ARE MADE
The World Bank offers two basic types of loans investment loans for goods work and
services to support economic and social development projects in a broad range of sectors and
adjustment loans to support policy and institutional reforms
During loan negotiations the World Bank agrees with the borrowing country on the
development objective of the project or program outputs performance indicators (to measure
the impact and success of the project) and a plan to put it all into practice Once a loan is
approved and becomes effective the borrower puts the project or program into practice
according to the terms agreed with the World Bank
The World Bank supervises how each loan is used and evaluates the results All loans are
governed by operational policies which make sure that operations are economically
financially socially and environmentally sound
VOTING POWERS
Like all corporate organizations each of the agencies of the World Bank Group has
shareholders these are the member countries Every shareholder is allocated a certain number
of votes linked to the size of its shareholding The votes include a specified number of
membership votes (which is the same for all members) and additional votes based on the
number of shares of the stock held The number of votes of a member expressed as a
percentage of the total number of votes held by all shareholders is the memberrsquos voting
power
TYPES OF LOAN
The Bank has two basic types of lending instruments investment loans and development
policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods
works and services in support of economic and social development projects in a broad range
of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides
quick-disbursing external financing to support policy and institutional reforms
STUDY OF THE FUNCTIONING OF WORLD BANK
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 30
Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 34
of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development Over the past two decades investment lending has on average accounted for
75 to 80 percent of all Bank lending
The nature of investment lending has evolved over time Originally focused on hardware
engineering services and bricks and mortar investment lending has come to focus more on
institution building social development and building the public policy infrastructure needed
to facilitate private sector activity Projects range from urban poverty reduction (involving
private contractors in new housing construction for example) to rural development
(formalizing land tenure to increase the security of small farmers) water and sanitation
(improving the efficiency of water utilities) natural resource management (providing training
in sustainable forestry and farming) post-conflict
Reconstruction (reintegrating soldiers into communities) education (promoting the education
of girls) and health (establishing rural clinics and training health care workers)
Eligibility Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group
Disbursement Funds are disbursed against specific foreign or local expenditures related to
the investment project including pre-identified equipment materials civil works technical
and consulting services studies and incremental recurrent costs Procurement of these goods
works and services is an important aspect of project implementation To ensure satisfactory
performance the loan agreement may include conditions of disbursement for specific project
components
Instruments The large majority of investment loans are either Specific Investment Loans or
Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and
Innovation Loans were recently introduced to provide more innovation and flexibility Other
instruments tailored to borrowers specific needs are Technical Assistance Loans Financial
Intermediary Loans and Emergency Recovery Loans
STUDY OF THE FUNCTIONING OF WORLD BANK
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
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TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs to support structural reforms in a sector or the economy as a whole They
support the policy and institutional changes needed to create an environment conducive to
sustained and equitable growth Over the past two decades development policy lendingmdash
previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of
total Bank lending
Eligibility Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group Eligibility for a development policy loan also requires agreement
on monitor able policy and institutional reform actions and satisfactory macroeconomic
management Coordination with the IMF is an essential part of the preparation of a
development policy loan
Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released
when the borrower complies with stipulated release conditions such as the passage of reform
legislation the achievement of certain performance benchmarks or other evidence of
progress toward a satisfactory macroeconomic framework
Instruments The new policy OPBP 860 applies uniformly to all development policy
lending replacing the previous different types of lending (eg RILs SALs SECALs
SNALs PSALs) Development policy operations in PRSP countries may continue to be
called PRSCs because this is by now a well-established brand name
World Bank Group Agencies
The World Bank Group consists of-
(1) The International Bank for Reconstruction Development (IBRD) established in 1945
(2) The International Finance Corporation (IFC) established in 1956
(3) The International Development Association (IDA) established in 1960
(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID) established in
1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
STUDY OF THE FUNCTIONING OF WORLD BANK
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 34
of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
STUDY OF THE FUNCTIONING OF WORLD BANK
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
STUDY OF THE FUNCTIONING OF WORLD BANK
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
STUDY OF THE FUNCTIONING OF WORLD BANK
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 44
water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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Governments can choose which of these agencies they sign up to individually The IBRD has
184 member governments and the other institutions have between 140 and 176 members
The institutions of the World Bank Group are all run by a Board of 24 Executive Directors
with each Director representing either one country (for the largest countries) or a group of
countries Directors are appointed by their respective governments or the constituencies
The agencies of the World Bank are each governed by their Articles of Agreement that serve
as the legal and institutional foundation for all of their work
I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT
HISTORY
Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m
to France for postwar reconstruction in real terms the largest loan issued by the Bank to
date)
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after
World War II with an additional mandate to foster economic growth in developing countries
in Africa Asia and Latin America Originally the bank focused mainly on large-scale
infrastructure projects building highways airports and power plants
As Japan and its European client countries graduated (achieved certain levels of income
per capita) the IBRD became focused entirely on developing countries
Since the early 1990s the IBRD has also provided financing to the post-Socialist states of
Eastern Europe and the former Soviet Union
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
STUDY OF THE FUNCTIONING OF WORLD BANK
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 46
3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 48
CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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CURRENT SCENARIO
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII
Now its mission has expanded to fight poverty by means of financing states Its operation is
maintained through payments as regulated by member states It came into existence
inDecember
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The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 32
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 33
The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 34
of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 35
GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 33
The IBRD provides loans to governments and public enterprises always with a government
(or sovereign) guarantee of repayment The funds for this lending come primarily from the
issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year
These bonds are rated AAA (the highest possible) because they are backed by member states
share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid
are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively
low interest rates As most developing countries have considerably lower credit ratings the
IBRD can lend to countries at interest rates that are usually quite attractive to them even after
adding a small margin (about 1) to cover administrative overheads
MISSIONS AND PRINCIPLES
The mission of the Bank is to
Fight poverty with passion and professionalism for lasting results
Help people help themselves and their environment by providing resources sharing
knowledge building capacity and foreign partnership in the public and private
sectors
Be an excellent institution able to attract excite and nurture diverse and committed
staff with exceptional skills who know how to listen and learn
The Principles of the Bank is
Client Centric
Working in partnership
Accountable for quality results dedicated to financial integrity and cost-effectiveness
Inspire and be innovative
PURPOSES
The purposes of the Bank as laid down in its Articles of Agreement are
To assist in the reconstruction and development of the territories of the members by
facilitating the investment of capital for productive purposes including the restoration
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 34
of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 35
GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 40
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
STUDY OF THE FUNCTIONING OF WORLD BANK
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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of economies destroyed by war the reconversion of productive facilities to peace time
needs and the encouragement of the development of productive facilities and
resources in the less developed countries
To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms to supplement private investments
by providing on suitable conditions finance for productive purposes out of its own
capital funds raised by it and other resources
To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments by encouraging international investments of
the productive resources of members thereby assisting in raising productivity the
standard of living and conditions of labour in their territories
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 48
CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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GUIDING PRINCIPLES
In its lending operation the Bank is guided by certain policies which have been formulated
on the basis of Articles of Agreement
First the Bank should properly assess the repayment prospects of the loans For this
purpose it should consider the availability of natural resources and productive plant
capacity to exploit the resources and operate the plant and the countries past debt
record
Secondly the Bank should lend only for specific projects which are economically and
technically sound and of a high priority nature Most
Bank loans have been made for basic utilities such as power and transport which are
prerequisites for economic development
Thirdly the Bank lends only to enable a country to meet the foreign exchange content
of any project cost it normally expects the borrowing country to mobilize its domestic
resources
Fourthly the Bank does not expect the borrowing country to spend the loan in a
particular country in fact it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance
Fifthly it is the Banks policy to maintain continuing relations with borrowers with a
view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries
Lastly the Bank indirectly attaches special importance to the promotion of local
private enterprise
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as roads
and railways telecommunications and ports and power facilities its development strategy
also places an emphasis on investment that can directly affectthe well-being of the masses of
STUDY OF THE FUNCTIONING OF WORLD BANK
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poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 36
poor people of developing countries by integrating them as active partners in the
development process
The following are the Lending Programmers of the Bank
Structural Adjustment Lending
The Bank in response to the deteriorating prospects for the developing countries during
the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This
lending supports programmes of specific
policy changes and institutional reforms to achieve a more efficient use of resources and
thereby
(a) Contribute to a more sustainable balance of payment in the medium and long term and
to the maintenance of growth in the face of severe constraints and
(b) Lay the basis for regaining momentum of future growth
Special Action Programme
In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase
assistance to countries that were making efforts to cope with the exceptionally difficult
economic environment brought on by a global recession
B-Loan and Export Credit
In January 1983 the Executive Director authorised the establishment of a new set of
financing instruments to help the Banks borrowers increase and stabilise flows of private
capital on approved terms by linking part of commercial bank flows to IBRD operations
These instruments which comprise the B-loan pilot programme include three options ie
(a) Direct Bank participation in the late maturities of a B-Loan
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 37
(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 38
CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 39
A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
STUDY OF THE FUNCTIONING OF WORLD BANK
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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(b) Bank guarantee of late maturities with the possibility of release from all or a part of
its share and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-rate
interest and variable amounts of principal
Repayment
II INTERNATIONAL DEVELOPMENT ASSOCIATION
HISTORY
The International Bank for Reconstruction and Development (IBRD) better known as the
World Bank was established in 1944 to help Europe recover from the devastation of World
War II The success of that enterprise led the Bank within a few years to turn its attention to
the developing countries By the 1950s it became clear that the poorest developing countries
needed softer terms than those that could be offered by the Bank so they could afford to
borrow the capital they needed to grow
With the United States taking the initiative a group of the Bankrsquos member countries decided
to set up an agency that could lend to the poorest countries on the most favorable terms
possible
They called the agency the International Development Association Its founders saw IDA
as a way for the haves of the world to help the have-nots But they also wanted IDA to be
run with the discipline of a bank
For this reason US President Dwight D Eisenhower proposed and other countries agreed
that IDA should be part of the World Bank (IBRD)
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
STUDY OF THE FUNCTIONING OF WORLD BANK
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 48
CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 55
IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 59
Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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CURRENT SCENARIO
The International Development Association (IDA) created on September 24 1960 is a UN
specialized agency It is responsible for providing long-term interest-free loans to the poorest
of developing countries on terms more lenient than those of the World Bank proper and
forms part of the World Bank Group based in Washington DC
The International Development Association (IDA) provides grants and soft loans with
repayment periods of some 30 years and no interest to the poorest countries (generally with
per capita incomes below $500 per year) IDA concessionary lending is funded by direct
contributions from member states which subsidies the difference between the IBRDs costs
and the price charged to IDA borrowers
IBRD and IDA are run on the same lines They share the same staff and headquarters report
to the same president and evaluate projects with the same rigorous standards But IDA and
IBRD draw on different resources for their lending and because IDArsquos loans are deeply
concessional IDArsquos resources must be periodically replenished (see IDA Funding below)
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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A country must be a member of IBRD before it can join IDA 165 countries are IDA
members
IDAs Articles of Agreement became effective in 1960 The first IDA loans known as
credits were approved in 1961 to Chile Honduras India and Sudan
IDArsquos MISSION
The International Development Association (IDA) is the part of the World Bank that helps
the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for
programs aimed at boosting economic growth and improving living conditions IDA funds
help these countries deal with the complex challenges they face in striving to meet the
Millennium Development Goals They must for example respond to the competitive
pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and
prevent conflict or deal with its aftermath
IDArsquos long-term no-interest loans pay for programs that build the policies institutions
infrastructure and human capital needed for equitable and environmentally sustainable
development IDArsquos goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy reducing poverty and
promoting more equal access to the opportunities created by economic growth
STUDY OF THE FUNCTIONING OF WORLD BANK
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
STUDY OF THE FUNCTIONING OF WORLD BANK
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
STUDY OF THE FUNCTIONING OF WORLD BANK
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 48
CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 54
LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 55
IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 56
MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 57
National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 59
Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 41
IDAs BORROWERS
IDA lends to those countries that had an income in 2005 of less than $1025 per person and
lack the financial ability to borrow from IBRD Some blend borrower countries like India
and Indonesia are eligible for IDA loans because of their low per person incomes but are also
eligible for IBRD loans because they are financially creditworthy Eighty-one countries are
currently eligible to borrow from IDA Together these countries are home to 25 billion
people half of the total population of the developing world Most of these people an
estimated 15 billion survive on incomes of $2 or less a day
IDA LENDING
IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before
repayments of principal begins IDA funds are allocated to the borrowing countries in relation
to their income levels and record of success in managing their economies and their ongoing
IDA projects There is no interest charge but credits do carry a small service charge
currently 075 percent on funds paid out See the terms of IDA lending
In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New
commitments in FY06 comprised 167 new operations Fifty percent of new
commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia
and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor
countries in North Africa and in Latin America The leading IDA borrowers in FY06 are
listed in Table 1
Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have
increased steadily and averaged about $91 billion over the last three years
Most loans address basic needs such as primary education basic health services and clean
water and sanitation IDA also funds projects that safeguard the environment improve
conditions for private business build infrastructure and support reforms to liberalize
countries economies and strengthen their institutions All these projects pave the way toward
economic growth job creation higher incomes and better living conditions
STUDY OF THE FUNCTIONING OF WORLD BANK
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
STUDY OF THE FUNCTIONING OF WORLD BANK
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 48
CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
STUDY OF THE FUNCTIONING OF WORLD BANK
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 54
LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
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FY06 Top Ten IDA Borrowers $million
Pakistan 1183
Vietnam 768
Tanzania 751
Ethiopia 505
India 500
Bangladesh 462
Nigeria 422
Democratic Republic of Congo 365
Ghana 355
Afghanistan 240
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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IDA FUNDING
While the IBRD raises most of its funds on the worlds financial markets IDA is funded
largely by contributions from the governments of the richer member countries Additional
funds come from IBRDs income and from borrowers repayments of earlier IDA credits
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions
Donors get together every three years to replenish IDA funds Donor contributions account
for more than half of the US$33 billion in the IDA14 replenishment which finances projects
over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by
the United States the United Kingdom Japan Germany France Italy and Canada but less
wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers
are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash
Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South
Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados
Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg
Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain
Sweden Switzerland and Venezuela
To increase openness and help ensure that IDArsquos policies are responsive to country needs and
circumstances representatives from each IDA region were invited to take part in the IDA13
and IDA14 replenishment negotiations
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners as well as
through its own programs IDA has learned from experience that development programs are
most successful when the borrower country ndash not just the government but non-governmental
organizations (NGOs) and other representatives of civil society ndash acquires a sense of
ownership of the programs through deep involvement in their design and execution In each
country IDA works with local development partners to ensure that the PRS is carried out in a
coherent way and that IDA focuses on areas where it has comparative advantage In IDA13
IDA targeted human-development projects in areas like education health social safety nets
STUDY OF THE FUNCTIONING OF WORLD BANK
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water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 44
water supply and sanitation (36) law justice and public administration (23) industry
(18) infrastructure (14) and agriculture and rural development (8)
ORIENTATION
Sound economic policies rural development private business and sustainable
environmental practices
Investment in people in education and health especially in the struggle against
HIVAIDS malaria and TB
Expansion of borrower capacity to provide basic services and ensure accountability
for public resources
Recovery from civil strife armed conflict and natural disaster and
Promotion of trade and regional integration
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health primary
Education literacy and clean water IDA is now the single largest source of donor funds for
basic social services in the poorest countries
IDA also coordinates donor assistance to provide relief for poor countries that cannot manage
their debt-service burden
Globalization ndash the increasing integration of world markets and societies ndash has allowed
China India and many other developing countries to achieve faster growth through expanded
foreign direct investments and access to export markets IDA is re-invigorating its work in
trade to assist the poorest and most marginalized countries to limit adverse disruptions from
globalization and to enhance net benefits from it IDArsquos work in this area emphasizes
measures to improve the investment climate enhance regional integration particularly in
Africa strengthen competitiveness remove barriers to the markets of industrial countries
and forge partnerships that enable acquisition of appropriate skills and infrastructure
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 46
3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 45
LENDING PROGRAMME
IDAs 81 eligible borrowers have very significant needs for concessional funds But the
amounts of funds available for lending which is virtually fixed once donations are pledged by
donor governments tends to be well below the countries need IDA therefore must allocate
scarce resources among eligible borrowing countries This note describes how this is done on
the basis of borrowers policy performance and institutional capacity in order to concentrate
resources where they are likely to be most helpful in reducing poverty
1 Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources
Relative poverty defined as GNP per capita below an established threshold US$1025
(as of July 1 2006)
Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the countrys development program
Good policy performance defined as the implementation of economic and social
policies that promote growth and poverty reduction
2 Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is
each countrys performance in implementing policies that promote economic growth and
poverty reduction This bas been assessed by the Country Policy and Institutional Assessment
(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based
Allocations the overall country score is referred to as the IDA Resource Allocation Index
(IRAI) In addition to the IRAI portfolio performance and governance also feature in the
allocation process Together the IRAI portfolio performance and governance constitute the
IDA Country Performance Rating (CPR) In addition to the CPR population and per capita
income also determine IDA allocations
STUDY OF THE FUNCTIONING OF WORLD BANK
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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3 Performance Ratings
Every year World Bank staff assesses the quality of each borrowers policy performance The
criteria and methodology of these assessments have evolved over time to incorporate lessons
from experience as well as research findings
Beginning in 1998 the country performance assessment was broadened to include an
appraisal not only of the governments policies but also of the institutions in place to
implement them The 16 performance criteria are grouped into four clusters
Structural Policies
Policies for Social InclusionEquity
Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that starting with the results for 2005 the numerical IDA country performance ratings
would be disclosed
The performance assessment also takes into account the performance of the countrys active
project portfolio performance The combined rating is scaledup or down depending on the
strength of the countrys governance performance resulting into the IDA Country
Performance Rating (CPR)
4 Allocation Process
The allocation of IDAs resources is determined primarily by each borrowers rating in the
annual country performance and institutional assessment In addition the IDA14
Agreement recommends that because the acceleration of economic and social development in
Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive
priority in the allocation process provided their policy performance warrants it
In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)
the IDA allocations must also take into account those countries creditworthiness for and
access to other sources of funds
STUDY OF THE FUNCTIONING OF WORLD BANK
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Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
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TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 47
Individual country performance-based allocations serve as an anchor for the formulation of
Country Assistance Strategy (CAS) lending programs
5 Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations As a result actual lending on per capita terms is robustly correlated with
performance levels The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most conducive
to effective resource use
III INTERNATIONALFINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new and
different entity to complement their own The Bank had been founded to finance post-World
War II reconstruction and development projects by lending money to member governments
and had been doing so effectively Yet in its initial years some senior staff had seen the need
for creating a related institution to spur greater private sector investment in poor countries
The economies of poor countries were still in very early stages of development lacking the
human resources physical infrastructure and sound institutions needed to raise incomes and
improve living standards Private sector investment in developing countries was small and
not much thought was given to increasing it It was into this environment that IFC was born
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 48
CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 56
MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
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commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
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TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 48
CURRENT SCENARIO
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve peoples lives
IFC is a member of the World Bank Group and is headquartered in Washington DC It shares
the primary objective of all World Bank Group institutions to improve the quality of the
lives of people in its developing member countries IFC Mission Statement
Established in 1956 IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world It promotes sustainable private sector
development primarily by
1 Financing private sector projects located in the developing world
2 Helping private companies in the developing world mobilize financing in
international financial markets
3 Providing advice and technical assistance to businesses and governments
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 55
IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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STUDY OF THE FUNCTIONING OF WORLD BANK
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 49
MISSION AND PRINCIPLES
Our mission is to promote sustainable private sector investment in developing countries
helping to reduce poverty and improve peoples lives
Shared Principles and Practices
IFC a member of the World Bank Group is a global investor and advisor that is committed
to promoting sustainable projects in our developing member
Countriesthose are economically beneficial financially and commercially sound and
environmentally and socially sustainable
We believe that sound economic growth is key to poverty reduction that it is grounded in the
development of entrepreneurship and successful private investment and that a conducive
business environment is needed for the latter to thrive and contribute to improving peoples
lives
We seek to continuously improve our performance by responding to clients promptly sharing
our successes and learning from our experience
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 50
The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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TYBMS SEM-V 52
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 54
LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 55
IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 56
MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 58
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TYBMS SEM-V 59
Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 60
V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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The following are the principles of IFC
(a) Added Value
IFC adds value to our developing member countries by
Taking educated risks that the private sector will not take alone
Pioneering opportunities in frontier countries and sectors to maximize our projects
demonstration effect and catalytic role
Innovating by developing new products and services that better meet our clients
needs
Providing quality advice when the private sector is unwilling or unable to do so
(b) Integrity
Holding ourselves and our clients to the highest professional and ethical standards
Recognizing in every investment the importance and value of good corporate
governance
Seeking to be transparent accountable and equitable and
Being honest open and fair in our dealings with each other with our clients and with
local communities
(c) Environmental and Social Sustainability
Ensuring that our projects attain high environmental and social standards
Consulting with local communities on project-specific environmental and social
impacts and opportunities
Working with responsible clients and other lenders and local NGOs and
Listening actively and responding to stakeholders and their concerns
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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STUDY OF THE FUNCTIONING OF WORLD BANK
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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GUIDING PRINCIPLES
To be eligible for IFC funding a project must meet a number of criteria The project must
Be located in a developing country that is a member of IFC
Be in the private sector
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STUDY OF THE FUNCTIONING OF WORLD BANK
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
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CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
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Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 60
V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 53
Be technically sound
Have good prospects of being profitable
Benefit the local economy and
Be environmentally and socially sound satisfying IFC environmental and social
standards as well as those of the host country
The following are the Guiding Principles of the IFC
(a) Investment Proposal
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal
After this initial contact and a preliminary review IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project
IFCs projectinvestment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects it may provide finance for a
company with some government ownership provided there is private sector participation and
the venture is run on a commercial basis Although IFC does not accept government
guarantees for its financing its work often requires close cooperation with government
agencies in developing countries
(c) Pricing and Financing Ceilings
To ensure the participation of investors and lenders from the private sector IFC limits the
total amount of own-account debt and equity financing it will provide for any single project
For new projects the maximum is 25 percent of the total estimated project costs or on an
exceptional basis up to 35 percent in small projects
IFC provides a wide variety of financial products and services to its clients and can offer a
mix of financing and advice that is tailored to meet the needs of eachproject However the
bulk of the funding as well as leadership and management responsibility lies with private
sector owners
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 59
Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 54
LENDING PROGRAMMES
IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in
capital and retained earnings Strong shareholder support triple-A ratings and the substantial
paid-in capital base have allowed IFC to raise funds for its lending activities on favorable
terms in the international capital markets Retained earnings now represent almost three-
quarters of IFCs net worth of $98 billion (end-June 2006)
Within the World Bank Group the World Bank finances projects with sovereign guarantees
while the IFC finances projects without sovereign guarantees This means that the IFC is
primarily active in private sector projects although some projects in the public sector (at the
municipal or sub-national level) have recently been funded
Private sector financing is IFCs main activity and in this respect is a profit-oriented financial
institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or
invests its own funds and borrowed funds to its customers and expects to make a sufficient
risk-adjusted return on its global portfolio of projects
IFCs activities however must meet a second test of contributing to a reduction in poverty in
line with its mandate In practice this is broadly interpreted but considerable time and effort
is devoted to both
(i) selecting projects with positive developmental outcomes and
(ii) Improving the developmental outcome of projects by various means
Apart from its core investment activities IFC also carries out technical cooperation projects
in many countries to improve the investment climate These activities may be linked to a
specific investment project or increasingly to broader goals such as improving the
legislative environment for a specific industry IFCs technical cooperation projects are
generally funded by donor countries or from IFCs own budget
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 55
IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 56
MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 59
Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 65
It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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IVMULTILATERAL INVESTMENT GUARANTEE
AGENCY
CURRENT SCENARIO
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank
group It was established to promote foreign direct investment into developing countries
MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in
Washington DC
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance advising governments on attracting investment sharing
information through on-line investment information services and mediating disputes between
investors and governments MIGA also requires host country government approval for every
project MIGA tries to work with host governments - resolving claims before they are filed
STUDY OF THE FUNCTIONING OF WORLD BANK
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MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 59
Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 56
MISSION
As a member of the World Bank Group MIGAs mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth reduce poverty
and improve peoples lives
Foreign direct investors can play a critical role in reducing poverty by building roads for
example providing clean water and electricity and above all providing jobs By taking on
these tasks the private sector can help economies grow and avert the need for governments to
use funds better spent on acute social needs while taking advantage of the opportunity to
make profitable investments
PURPOSE
MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting
investors and private insurers into difficult operating environments The agencys strategy
focuses on specific areas where we can make the greatest difference
Infrastructure development is an important priority for MIGA given the estimated
need for $230 billion a year solely for new investment to deal with the rapidly
growing urban centers and underserved rural populations in developing countries
Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent
both a challenge and an opportunity for the agency These
Markets typically have the most need and stand to benefit the most from foreign
investment but are not well served by the private market
Investment into conflict-affected countries is another operational priority for the
agency While these countries tend to attract considerable donor goodwill once
conflict ends aid flows eventually start to decline making private investment critical
for reconstruction and growth With many investors wary of potential risks political
risk insurance becomes essential to moving investments forward
South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows But the private insurance market in
these countries is not always sufficiently developed and
STUDY OF THE FUNCTIONING OF WORLD BANK
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National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 59
Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 67
2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
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participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 57
National export credit agencies often lack the ability and capacity to offer political
risk insurance
GUIDING PRINCIPLES
Confidence security and credibility MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries As part of the
World Bank Group and having as our shareholders both host countries and investor
countries MIGA brings security and credibility to an investment that is unmatched Our
presence in a potential investment can literally transform a no-go into a go We act as a
potent deterrent against government actions that may adversely affect investments
And even if disputes do arise our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties
STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 60
V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
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LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
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MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
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2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
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For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
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STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
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emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
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IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
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BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
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STUDY OF THE FUNCTIONING OF WORLD BANK
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Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
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HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
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CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
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CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 59
Market leader MIGA is a leader when it comes to assessing and managing political risks
developing new products and services and finding innovative ways to meet client needs But
we dont stop there We also provide expert advice to help countries attract and retain quality
foreign investment and a host of online services to make sure investors know about business
opportunities in our developing member countries
Complex deals MIGA can be the difference between make or break by providing that all-
critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative
coverage of the nontraditional sub-sovereign risks that often accompany water and other
infrastructure projects We can also cover interest rate hedging instruments as we did for a
power project in Vietnam as well as provide capital markets guarantees which we recently
did for residential mortgage-backed securities in Latvia
PRI market MIGA complements the activities of other investment insurers and works with
partners through its coinsurance and reinsurance programs By doing so we are able to
expand the capacity of the political risk insurance industry to insure investments as well as to
encourage private sector insurers into transactions they would not have otherwise undertaken
LENDING PROGRAMMES
MIGA provides guarantees against noncommercial risks to protect cross-border investment in
developing member countries Guarantees protect investors against the risks of Transfer
Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts
between the investorproject
enterprise and the authorities of the host country) These coverages may be purchased
individually or in combination
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 60
V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 62
CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
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DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
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It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
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2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
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WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
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TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 60
V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
DISPUTES
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 62
CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 65
It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 67
2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 61
HISTORY
In the past the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes But the Banks
overriding consideration in creating ICSID was the belief that an institution specially
designed to facilitate the settlement of investment disputes between governments and foreign
investors could help to promote increased flows of international investment
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14 1966
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 62
CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 65
It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 67
2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 62
CURRENT SCENARIO
The International Centre for Settlement of Investment Disputes (ICSID) an institution of
the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (the ICSID Convention or
Washington Convention) As of May 2005 155 countries had signed the ICSID Convention
ICSID is an autonomous international organization However it has close links with the
World Bank All of ICSIDs members are also members of the Bank Unless a government
makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs
Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks
budget although the costs of individual proceedings are borne by the parties involved
ICSID has an Administrative Council chaired by the World Banks President and a
Secretariat It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors
During the past decade with the proliferation of bilateral investment treaties (BITs) most of
which refer present and future investment disputes to the ICSID the caseload of the ICSID
has substantially increased As of June 30 2005 ICSID had registered 184 cases more than
30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent
Argentine government measures led several foreign investors to file cases against
ArgentinaICSIDrsquos headquarters are located in Washington DC
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 65
It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 67
2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 63
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 65
It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 67
2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
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TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 64
DIFFERENCE BETWEEN IMF AND WORLD BANK
Sr
No
IMF WORLD BANK
1
Purpose
Monetary Institution
Development Institution
2
Activities
Stabilisation of the
international monetary
system Finance of
temporary balance of
payment deficits
Promotion of economic growth
and development in developing
countries
3 Source of
funds
Official reserves and
countries currencies
Special Drawing Rights
(SDRs)
Capital quotas Issues in the
international market
4 Eligible
Borrowers
All members Developing countries
5 Outlook Short Term Long-Term
6 Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7 Staff 2700 9500
INDIA amp THE WORLD BANK
With some 11 billion people diverse regions and a vibrant democracy India has been
making progress on a scale size and pace that is unprecedented in its own history In the
nearly 60 years since its independence the country has been successful on a number of
fronts
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 65
It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 67
2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 65
It has maintained electoral democracy
Banished the specter of famines
Reduced absolute poverty by more than half
Dramatically improved literacy
Vastly improved health conditions
Become one of the worldrsquos fastest growing economies with average growth rates of
8 over the past three years
Emerged as a global player in information technology business process outsourcing
telecommunications and pharmaceuticals
Is now the worldrsquos fourth largest economy in purchasing power parity terms
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 67
2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 66
CHALLENGES
The countryrsquos achievements have however created new challenges Some of the most
prominent are
1 Improving theDelivery of Core Public Services
As incomes rise citizens are demanding better delivery of core public services such as water
and power supply education policing sanitation roads and public health And as physical
access to services improves issues of quality have become more central
EducationWhile India has made huge progress in getting more children into primary
school learning outcomes have yet to make more headway
Health Although population growth has fallen below 2 per year due to declining fertility
there has been little improvement in maternal mortality rates Despite falling child mortality
rates remain high as they are strongly related to child malnutrition where little progress has
been made
Infrastructure Power networks roads transportation systems and ports are facing huge
demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos
competitiveness and hurting the growth of labor-intensive enterprises particularly export-
oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working
population
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 67
2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 67
2 Making Growth More Inclusive
Substantial disparities persist within the country In a marked departure from previous
decades reforms of the 1990s were accompanied by a visible increase in income inequality
Although this continues to be relatively low by global standards disparities between urban
and rural areas prosperous and lagging states skilled and low-skilled workers are growing
Inequality can have huge social costs and evidence of social unrest in some disadvantaged
regions is growing
Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of
Indiarsquos people depend on rural employment for a living Current agricultural practices are
neither economically nor environmentally sustainable andIndias yields for many agricultural
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 68
commodities are low Poorly maintained irrigation systems and almost universal lack of good
extension services are among the factors responsible Farmers access to markets is hampered
by poor roads rudimentary market infrastructure and excessive regulation
Jobs While the services sector booms with promising job opportunities for skilled workers
some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs
Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos
higher-incomestates have successfully reduced poverty to levels comparable with richer Latin
American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya
Pradesh Orissa Rajasthan and Uttar
Pradesh - have not kept pace and are lagging behind their more prosperous counterparts
3 Sustaining Growth
Maintaining high growth will also require attention to some basics
Fiscal deficit While the country has improved its fiscal indicators recently further
improvements will be needed to reduce risks to fiscal stability and more importantly to
create the space to fund the countryrsquos large infrastructure needs and ambitious social
development programs
Trade Deficit The trade deficit is large and has widened due to high oil prices and increased
non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due
to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of
external debt and buoyant exports of services
Ongoing Reform Redoubling of reforms that address the basic constraints to growth is
essential as international experience shows that the recipe for slow growth is complacency
about pushing ahead with reforms in times when growth
PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive The 11th
Plan approach paper lays out the Governmentrsquos
priorities in this direction A variety of Government initiatives have been launched to build
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 69
rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health
(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for
these and other programs to be effective it is increasingly being recognized that deeper
institutional reforms are needed to strengthen capacity and enforce accountabilities at all
levels
Public sector services reform Indiarsquos core public services such as healthcare education
power water supply and transportation need urgent improvement This will require systemic
reform of the public sector service providers implementingeffective systems of accountability
to citizens decentralizing responsibilities and expanding the role of non-state service
providers
InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain
its current levels of growth and to spread the benefits of growth more widely Although this
will clearly require a government role the relative roles of the government and private sector
need to be defined
Agricultural and rural development Raising agricultural productivity requires a return to
investments in agricultural technology and infrastructure Getting the rural economy moving
will also require facilitating rural - non-farm - entrepreneurship The bright spot on the
horizon is that the private sector is now looking at the rural areas as a potentially important
market and is increasing its investments accordingly thereby opening up new opportunities
for Indian farmers
Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the
world - have constrained the growth of the formal manufacturing sector where these laws
have their widest application Better designed labor regulations can attract more labor-
intensive investment and create jobs for
Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos
momentum of growth the window of opportunity must not be lost for improving the job
prospects for the 80 million new entrants who are expected to join the work force over the
next decade
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 70
WORLD BANK SUPPORT TO INDIA
The assessment of the development effectiveness evaluation of the Banks assistance to India
began during the 1990s India was one of the Banks founding members and remains one of
its largest and most influential borrowers The Bank has been Indias largest source of
external long-term capital and has financed a sizable share of its public investment Its
lending and non-lending services have been thinly spread over many central and state
agencies and have addressed many different objectives
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes fiscal imbalances and a large and unwieldy public
sector After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes Economic growth rebounded quickly and proved resilient even during the 1997 East
Asian crisis Social indicators also improved India however failed to sustain the reform
process in the fiscal area and to broaden it to other structural areas Moreover there was little
progress in reducing rural poverty largely due to the absence of an effective agricultural and
rural development strategy and low growth in the poorer northern and eastern states In the
second half of the 1990s a few states initiated substantial policy and institutional changes
but there remains a large outstanding reform agenda at both the state and federal levels
India has built strong foundations for development The Banks main challenge is to support
far-reaching reforms at both the state and central government levels with high quality and
widely disseminated policy studies and policy
based sector and program loans The five pillars and the fiscal and structural reform triggers
of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate
and assure the full application of those pillars and triggers appear necessary
The World Bank works in close partnership with Indiarsquos Central and State Governments
aligning its strategies with the countryrsquos own development agenda It lays emphasis on
investing in people through better health and education empowering communities to
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 71
participate in their own development improving the effectiveness of government and
promoting private sector-led growth to achieve the countryrsquos development goals
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human
development and improving rural livelihoods The Bank is increasingly focusing on
providing analytical reports on the countryrsquos major development challenges and extending
practical advice to policy makers by sharing good practices and experience from within the
country and abroad
LENDING
Indiais one of the oldest members of the World Bank having joined the institution in 1944
New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this
US$500 million was from the IDA the World
Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006
the Bank group had 56 active projects with a net commitment of about US$ 113 billion
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 72
TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION
(by fiscal year in nearest US$ billions)
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
New 26 22 15 14 29 14
Total 135 130 130 120 128 113
No of Active Projects 76 69 70 63 64 56
KEY DEVELOPMENT INDICATORS
GROWTH (200405-200506 Revised Estimates)
Population16
GDP 84
Agriculture 39
Industry 76
Services 103
Merchandize Exports 23
Poverty(at $1 a day 2000 PPP) 35
Fertility rate 20043 births per woman
Average life expectancy at birth(1998-02) 63 years
Infant mortality (per 1000 live births 2004)62
Maternal Mortality(per 100000 live births 2001)540
ChildMalnutrition (below 5 years 1998) 47
Primary school enrollment net200487
Gap between boysrsquo and girlsrsquo enrollment reduced
Male Adult literacy2000-04734
Female Adult literacy2000-04 478
Access to improved water source200186
Access to improved sanitation facilities 2002 30
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 73
LENDING BY SECTOR
(As on June 30 2006 in US$ millions)
LENDING BYSTATE
( of total Bank lending to India as on June 30 2006)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 74
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 75
MACRO INDICATORS
2001 2002 2003 2004 2005
A Real Expenditure Growth
1 GDP at market prices 52 41 86 69 80
2 Private consumption 56 33 82 85 90
3 Government consumption 30 -24 37 45 60
4 Fixed investment 44 50 125 89 92
5 Exports GNFS 56 219 98 134 124
6 Imports GNFS 34 103 117 250 160
B Contribution to GDP Growth
1 Private consumption 37 21 53 55 59
2 Government consumption 04 -03 04 05 07
3 Fixed investment 10 11 28 20 21
4 Net exports 03 16 -02 -17 -08
C Price Deflators
1 GDP at market prices -05 10 69 31 56
2 Private consumption 10 10 11 12 12
3 Exports GNFS -39 -12 52 34 72
4 Imports GNFS -26 69 108 119 140
D Share of GDP
1 Private consumption 657 654 661 684 701
2 Government consumption 125 120 117 117 118
3 Fixed investment 220 226 235 247 255
4 Change in stocks 04 04 03 03 03
5 Total investment
224
230
238
250
258
6 Exports GNFS
135
155
154
164
173
7 Imports GNFS 142 159 169 215 249
E Memo
1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 76
2 Population (millions) 10378 10544 10708 10871 11016
3 GDP per capita current USD 4592 4752 5432 5899 6636
4 Real per capita GDP growth 35 25 69 53 66
5 USD Fx rate 477 484 460 453 441
6 Current account balance ( GDP) 03 14 12 -05 -29
7 General government bal ( GDP) -99 -97 -91 -85 -84
THE INDIA AND WORLD BANK PARTNERSHIP
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India the Bank Group cannot support
India in every effort toward achieving its Tenth Plan goals and the Millennium Development
Goals Instead since 1977 Bank Group strategies have been to engage selectively in India
and primarily at the state levels with knowledge resources and financing geared towards
reform The main thrust of the strategy has been to support the programs of lending reform
states in order to create demonstration effect that might stimulate reforms across other states
or in other sectors of a reforming state The focus of IFC activity has been on investments in
manufacturing financial services and infrastructure
Recent Bank Group programs have been ambitious in their efforts to catalyze and expand
the state reform process in areas that are central to reducing poverty in India- and when
progress in reforms was slower than expected Bank strategy was also well structured to deal
with the slowdown in reform implementation that took place in several states While
concluding that the FY02-04 strategy was broadly appropriate the review points to some
lessons of experience which suggested an evolution of the strategy going forward These
include the need to address growing disparities in state development performance especially
given the importance to the poorest state for achievement of the MDGs the importance of
long-term engagement with state on cross-cutting reform issues
and the disadvantages of concentrating investment lending in states that are recipients of
adjustment lending
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 77
For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five
years sustained improvement in most quality indicators and showed mixed results in FY04
after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances These actions resulted in an
improvement in disbursement performance but also in an increase in the riskiness rating of
the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below
the Bank average of 214 and ratios for other large borrowers such as China (22) and
Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to
11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not
been ready for implementation at approval and hence suffered one or two years at the outset
in which little was disbursed At current implementation and disbursement rates none of the
ongoing projects in the portfolio can be completed within the 5-year implementation period
which has been the business standard for Bank projects in the South Asia region
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow disbursing
projects The increase in portfolio riskiness rating results from more candid reporting and
proactive portfolio management which is reflected in the end FY04 realism and proactivity
indices of 90 and 83 respectively In order to improve portfolio and support the strategy for
scaling up Bank support to India the Bank and Government of India engaged in ways
To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy
The Banksrsquo lending volumes have been reduced when states have slowed in their
implementation of fiscal governance and power reforms The slowdown in
Some state reforms reduced Bank financing during FY03 and FY04 the AAA
Program of the Bank was stepped up The country team continued with reforms and provided
non-lending Technical Assistance in UP when further adjustment lending was put on hold as
the states reform process faltered Substantial policy advice and non-lending Technical
Assistance have also been provided in states where adjustment lending has been under
preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the
investment climate and fiscal governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged including Maharashtra Bihar and
Punjab
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 78
For IFC programs commitments in India grew strongly over CAS period albeit with
considerable variation in response to changing market and regulatory conditions Over the
last two years IFC achieved record commitment in India nearly doubling its portfolio
improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second
largest exposure In FY03 IFC committed a record US$348 million and in FY04
commitments were US$290 million with a concentration in manufacturing as well as
investments in agribusiness power oil and gas finance and health care The expansion was
mainly in long-term debt aided by introduction of local currency lending which is better
suited to sectors such as infrastructure housing finance and health care that do not generate
foreign exchange
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 79
STRENGTHS
The Bank Group offers a number of strengths
Firstly the Bank Grouprsquos ability to gather and share global knowledge and
experience with Government of India
Secondly the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in Indiarsquos
development
Thirdly through lending and investment the Bank Group can help catalyze greater
effectiveness and more efficient spending towards ultimate goal of reducing poverty
and encouraging Indiarsquos sustainable development
STRATEGIC PRINCIPLES
To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos
work
Focusing on outcomes To ensure all of the work of the Bank Group is explicitly
geared towards supporting Indiarsquos achievement of its development goals The Bank
Group will support achievement of these outcomes with all of its finance and
knowledge resources in India the outcomes will in turn serve as goal posts to measure
the effectiveness of Bank Group support over the medium term timeframe of the
assistance strategy
Selectivity Due to complexity of Indiarsquos development challenges Bank Group
programs will necessarily span a wide range of sectors and types
of inventions Nevertheless selectivity will be applied to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective An
important element of this working closely with major donors and financing partners
remaining in India taking their programs into account and seeking to work together for co-
financing of country-led programs Lending selectivity will also be exercised by choosing
projects in a way that seeks to maximize their impactSelectivity therefore means a greater
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 80
emphasis on project that either pilotdemonstrate new approaches for possible scaling up
later projects that move from successful pilots to larger scale inventions and projects that
supports expansion of proven government programs on sector-wide basis
Knowledge provider and generator The Bank will also aim to substantially expand
its role as politically realistic knowledge provider and generator To achieve this shift
changes are envisioned on a number of fonts including
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience
(ii) Placing greater emphasis on understanding the motivation of interest groups and
different stakeholders in the reform process
VOLUME OF LENDING TO INDIA
Given Indiarsquos enormous needs the expansion will primarily be in
(i) Infrastructure (roads transport water supply and sanitation irrigation and urban
development-to underpin both accelerated growth and improved service delivery)
(ii) Human Development (education health social protection-priorities to support
specific MDGs) and
(iii) Rural Livelihoods (with an emphasis on community driven approaches)
Cross-cutting reforms at the state level will also remain an important focus Expansion in
lending for human development and rural livelihoods will depend critically on availability on
IDA resources
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport The Private Sector Development Strategy
suggests some areas where this collaboration might be developed IFC and MIGA assistance
will encompass activities that fall within the private sectorrsquos role
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 81
IFC will continue to provide equity and loan financing and guarantees to supplement what
is available from Indian financial institutions or capital
markets and will help to mobilize financing from both domestic and international sources
This will include pioneering investments in infrastructures
And long tenors are required and investments in projects which are constrained by limited
risk appetite of other investors including medium-sized manufacturing countries
agribusiness companies and companies entering new
markets domestically and internationally IFC adds value to projects it invests in by
mobilizing finance from other sources advising on structuring acting as an honest broker
between various project parties and facilitating international partnership particularly with
other developing countries
The Bank Group focuses on adding value through advice on environment and social
sustainability public and corporate governance and the transfer of global knowledge and best
practices
By doing so IFC promotes higher corporate standards of social and environmental
responsibility and the Bank works to improve implementation of environmental and social
frameworks and strengthen the national and state-level frameworks for procurement and
financial management
Additionally Country Financing Parameters which allow increased flexibility in the type
of expenditures that are eligible for Bank financing in India are also being developed
In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in
India the AAA program is being reshaped to focus on
(i) Preparation and dissemination of a limited number of major reports on key issues
in Indiarsquos development
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 82
(ii) Just-in-time activities primarily in response to Government of Indiarsquos request
Since India has underutilized trust fund and grant programs offered through Bank Group in
the past at the request of Government of India greater effort will be made to enhance the
participation with these programs in the coming strategy period In particular Government of
India and the Bank will seek to
Help strengthen project readiness via upfront analytical work and strengthen implementation
capacity or the capacity of key institution
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 83
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 84
CONCLUSION
WORKING AT THE NATIONAL LEVEL
Scaling up will require expanded Bank support at the national level A large part of this
expansion will be in the form of AAA for instance the series of major reports will primarily
assess issues of national consequences Some of
These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment
Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge
Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts
The increase in overall lending will also involve more national level lending as compared
to recent years The use of new approaches including co-financing with other development
partners under common arrangements for national programs in the areas most critical to
meeting the MDGs Using such approaches the Bank will seek to step up its national level
engagement and work closely with partners that can join the Bank in providing substantial
assistance Such operations are already beginning to materialize with the first being a major
new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary
education program- SarvaShikshaAbhiyan (SSA)
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group
STUDY OF THE FUNCTIONING OF WORLD BANK
TYBMS SEM-V 85
BIBILOGRAPHY
WEBSITES VISITED
wwwworldbankorgin
wwwimfcom
wwwgoogleorg
wwwimforg
OTHER REFERENCES
World Bank Publications - Reference Book
Accountability at the World Bank
World Fact book
World Bank Group Historical Chronology
―Document of The World Bank Memorandum of the President of the IBRD and IFC to
Executive Directors on a Country Assistance Strategy of the World Bank Group