The International Bank for Reconstruction and Development (IBRD) is an international financial institution, established in 1944 and headquartered in Washington, D.C., United States; it is the lending arm of World Bank Group. The IBRD offers loans to middle-income developing countries. It is the first of five member institutions that compose the World Bank Group. The initial mission of the IBRD in 1944, was to finance the reconstruction of European nations devastated by World War II. The IBRD and its concessional lending arm, the International Development Association (IDA), are collectively known as the World Bank as they share the same leadership and staff.[1][2][3]
The IBRD is owned and governed by its 189 member states, with each country represented on the Board of Governors. The IBRD has its executive leadership and staff which conduct its normal business operations. The Bank's member governments are shareholders which contribute and have the right to vote on its matters. In addition to contributions from its member nations, the IBRD acquires most of its capital by borrowing on international capital markets through bond issues at a preferred rate because of its AAA credit rating.
In 2011, it raised US$29 billion in capital from bond issues made in 26 different currencies. The Bank offers several financial services and products, including flexible loans, grants, risk guarantees, financial derivatives, and catastrophic risk financing. It reported lending commitments of $26.7 billion made to 132 projects in 2011.
Governance
There are five "closely associated institutions" that each have a "distinct role"[4] and together form the World Bank—the IBRD, the International Development Association (IDA), the International Finance Corporation (IFC), that "invests in private firms and promotes entrepreneurship",[5] the Multilateral Investment Guarantee Agency (MIGA), that guarantees loans, and the International Centre for Settlement of Investment Disputes (ICSID). Their mission is to "fight poverty and improve living standards for people in the developing world."[4] By 2018, the World Bank Group was "one of the world's largest sources of funding and knowledge for developing countries."[4] Of the five institutions, the IBRD and the IDA are the World Bank's two largest units.[5] When a country reaches a GDP per person over US$1,145, they are no longer eligible for IDA financial support. For example, of the BRIC countries, China was no longer eligible in 1999 and by 2014, neither was India.[5]
The IBRD is governed by the World Bank's Board of Governors which meets annually and consists of one governor per member country (most often the country's finance minister or treasury secretary). The Board of Governors delegates most of its authority over daily matters such as lending and operations to the board of directors. The Board of Directors consists of 25 executive directors[6] and is chaired by the President of the World Bank Group. The executive directors collectively represent all 189 member states of the World Bank. The president oversees the IBRD's overall direction and daily operations.[1][7]
The Bank and IDA operate with a staff of approximately 10,000 employees.[8]
On 9 April 2019, United States President Donald Trump nominated David Malpass as the World Bank Group's president.[5][9] Malpass had served as one of President Trump's economic advisers and as a senior official in the United States Treasury Department.[5] The IBRD member nations did not sponsor a "rival candidate" and Malpass became president, in spite of the fact that he is critical of the role of the IBRD.[5]
Background
The International Bank for Reconstruction and Development (IBRD) and International Monetary Fund (IMF) were established by delegates at the Bretton Woods Conference in 1944 and became operational in 1946.[10] According to a March 2012 Washington Post article, IBRD was the "original 'world bank'".[11]
IBRD field offices were opened in Paris, France, Copenhagen, Denmark, and Prague in the former Czechoslovakia.[12]
The IBRD was established with the original mission of financing the reconstruction efforts of war-torn European nations following World War II,[5] with goals shared by the later Marshall Plan. The Bank issued its inaugural loan of $250 million ($2.6 billion in 2 dollars[13]) to France in 1947 to finance infrastructure projects.
In 1946, a few months after it became operational, Chile sought financial help from the IBRD—the first of the developing countries to do so.[5]
Throughout the remainder of the 1940s and 1950s, the Bank-financed projects sought to dam rivers, generate electricity and improve access to water and sanitation. It also invested in France, Belgium, and Luxembourg's steel industry. Following the reconstruction of Europe, the Bank's mandate has transitioned to eradicating poverty around the world.
In 1960, the International Development Association (IDA) was established to serve as the Bank's concessional lending arm and provide low and no-cost finance and grants to the poorest of the developing countries as measured by gross national income per capita.[2]
The IBRD is restricted in its borrowing, as it cannot provide loans in competition with private capital; IBRD loans have to be tied to specific projects; and the IBRD will normally only finance the direct foreign exchange costs of a project.[14]
By 2012, according to The Post, IBRD was using "its AAA credit rating to sell bonds at interest rates close to those of U.S. Treasury bonds." It loaned money to developing nations, such as China and Brazil.[11]
According to the Global Policy, journal, While the IBRD and the IDA historically prioritized funding infrastructure projects, since the 1990s, the Bank has directed less lending to infrastructure projects in favour of other development projects such as fighting climate change, eradicating poverty and ensuring good governance.[15]
Financial model
The IBRD finances its activities from the shares its members hold, as well as borrowing on international capital markets by issuing World Bank bonds. The Bank raised US$54.0 billion worth of capital in fiscal 2019 from bonds issued in 27 different currencies.[16]
Since 1959, the IBRD, which is backed by world governments[5] has had a triple-A credit rating, which allows it to borrow capital at lower rates.[17]
According to a 2015 article, commissioned by the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development—also known as the Group of 24 (G-24)—multilateral development banks (MDBs)—such as the IBRD—"represent one of the most successful types of international organization created in the post-World War II era." By October 2015, although the WBG—with its lending arms—was the only "global institution,[15]:1 there were more than twenty operational 20 MDBs in the world.[18] In 2016, the Asian Infrastructure Investment Bank and BRICsNew Development Bank began operations.[18] Like other multilateral development banks, (MDBs), the IBRD has a preferred credit treatment (PCT), through which borrowers grant the MDBs a "privileged position to be first in line for repayment, should a country face financial restrictions."[18]:5
The bank also generates income from the return on its equity and the small margins on the loans. As the IBRD does not seek profit, it transfers part of its excess income to the IDA ($259 million in fiscal 2019).[16]
In 2011, the IBRD loaned about US$26 billion, which represented just a "fraction of the $72 billion the IMF approved as a credit line to a single nation, Mexico."[11] In the early 2010s, the total of "capital investments in emerging markets from all sources have topped $1 trillion annually".[11] According to the Institute of International Finance, in 2011, the "combined net investment of the World Bank and other international development banks and agencies" was about $20 billion in 2011.[11]
According to a 2019 The Economist article, the IBRD is "more controversial" than the International Development Association (IDA) lending arm. With its AAA credit rating, the IBRD can "borrow money cheaply on the international financial markets".[5] Middle-income countries, like Brazil and China, that currently borrow from the IBRD, could "borrow in abundance from foreign investors" on their own.[5]
Services
IBRD loans and IDA credits in 2005
The IBRD provides financial services as well as strategic coordination and information services to its borrowing member countries.[19] The Bank only finances sovereign governments directly, or projects backed by sovereign governments.[20] The World Bank Treasury is the division of the IBRD that manages the Bank's debt portfolio of over $100 billion and financial derivatives transactions of $20 billion.[21]
The Bank offers flexible loans with maturities as long as 30 years and custom-tailored repayment scheduling. The IBRD also offers loans in local currencies. Through a joint effort between the IBRD and the International Finance Corporation, the Bank offers financing to subnational entities either with or without sovereign guarantees. For borrowers needing quick financing for an unexpected change, the IBRD operates a Deferred Drawdown Option which serves as a line of credit with features similar to the Bank's flexible loan program.[22] Among the World Bank Group's credit enhancement and guarantee products, the IBRD offers policy-based guarantees to cover countries' sovereign default risk, partial credit guarantees to cover the credit risk of a sovereign government or subnational entity, and partial risk guarantees to private projects to cover a government's failure to meet its contractual obligations. The IBRD's Enclave Partial Risk Guarantee covers private projects in member countries of the IDA against sovereign governments' failures to fulfil contractual obligations.[23] The Bank provides an array of financial risk management products including foreign exchange swaps, currency conversions, interest rate swaps, interest rate caps and floors, and commodity swaps.[24] To help borrowers protect against catastrophes and other special risks, the bank offers a Catastrophe Deferred Drawdown Option to provide financing after a natural disaster or declared state of emergency. It also issues catastrophe bonds which transfer catastrophic risks from borrowers to investors.[25] The IBRD reported $23.2 billion in lending commitments for 100 projects in fiscal year 2019.[16] The top 10 borrowers were India, Indonesia, Jordan, Egypt, Argentina, China, Morocco, Turkey, Ukraine and Colombia. The most supported sector was Public Administration.
The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries. It is the largest and best-known development bank in the world and an observer at the United Nations Development Group. The bank is headquartered in Washington, D.C., in the United States. It provided around $98.83 billion in loans and assistance to "developing" and transition countries in the 2021 fiscal year. The bank's stated mission is to achieve the twin goals of ending extreme poverty and building shared prosperity. Total lending as of 2015 for the last 10 years through Development Policy Financing was approximately $117 billion. Its five organizations are
The International Finance Corporation (IFC) is an international financial institution that offers investment, advisory, and asset-management services to encourage private-sector development in less developed countries. The IFC is a member of the World Bank Group and is headquartered in Washington, D.C. in the United States.
The International Development Association (IDA) is a development finance institution which offers concessional loans and grants to the world's poorest developing countries. The IDA is a member of the World Bank Group and is headquartered in Washington, D.C. in the United States. It was established in 1960 to complement the existing International Bank for Reconstruction and Development by lending to developing countries which suffer from the lowest gross national income, from troubled creditworthiness, or from the lowest per capita income. Together, the International Development Association and International Bank for Reconstruction and Development are collectively generally known as the World Bank, as they follow the same executive leadership and operate with the same staff.
Credit risk is the possibility of losing a lender holds due to a risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. Because of this, measures of borrowing costs such as yield spreads can be used to infer credit risk levels based on assessments by market participants.
An international financial institution (IFI) is a financial institution that has been established by more than one country, and hence is subject to international law. Its owners or shareholders are generally national governments, although other international institutions and other organizations occasionally figure as shareholders. The most prominent IFIs are creations of multiple nations, although some bilateral financial institutions exist and are technically IFIs. The best known IFIs were established after World War II to assist in the reconstruction of Europe and provide mechanisms for international cooperation in managing the global financial system.
The Multilateral Investment Guarantee Agency (MIGA) is an international financial institution which offers political risk insurance and credit enhancement guarantees. These guarantees help investors protect foreign direct investments against political and non-commercial risks in developing countries. MIGA is a member of the World Bank Group and is headquartered in Washington, D.C. in the United States.
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), two of five international organizations owned by the World Bank Group. It was established along with the International Monetary Fund at the 1944 Bretton Woods Conference. After a slow start, its first loan was to France in 1947. In the 1970s, it focused on loans to developing world countries, shifting away from that mission in the 1980s. For the last 30 years, it has included NGOs and environmental groups in its loan portfolio. Its loan strategy is influenced by the United Nations' Sustainable Development Goals, as well as environmental and social safeguards.
China originally joined the World Bank Group (WBG) on December 27, 1945. However, after the Chinese Civil War, the World Bank recognized the Republic of China as its member, until the relationship ended in 1980, when the membership was replaced by the People's Republic of China. The People's Republic of China (PRC) did not become involved with the World Bank group until 1980, when it first joined the World Bank in April due to the market reforms known as reform and opening-up. Prior to the economic reform and its relation with the World Bank, according to CRS, "China maintained policies that kept the economy very poor, stagnant, centrally controlled, vastly inefficient, and relatively isolated from the global economy". Since its entry into the World Bank, China has transformed into a market-based economy and has experienced rapid economic and social development. Currently, although China has become the world's second largest economy with 1.4 billion population, it still has a close relationship with the World Bank in areas such as poverty, environmental protection and new challenges from the reform.
Uruguay and the World Bank have been working together for a long time. This is because they both mutually benefit.
Vietnam joined the World Bank Group (WBG) on 21 September 1956. Before the mid-1980s, Vietnam was one of the world's least developed countries. A series of economic and political reforms launched in 1986, known as Đổi Mới, caused Vietnam to experience rapid economic growth and development, becoming a lower middle-income country. The World Bank (WB) has maintained a development partnership with Vietnam since 1993. As of 25 March 2019, it has committed a total of US$24 billion in loans, credits, and grants to Vietnam through 165 operations and projects, 44 of which are active as of 2019 and comprise US$9 billion. With an estimated extreme poverty rate below 3% and a GDP growth rate of 7.1% in 2018, Vietnam's economy continues to show fundamental strength and is supported by robust domestic demand and export-oriented manufacturing.
The relationship between Ethiopia and the World Bank was formalized on December 27, 1945.
Croatia joined the World Bank in 1993, two years after declaring independence from the Socialist Federal Republic of Yugoslavia in 1991. The World Bank's projects from the mid-1990s to the mid-2000s primarily focused on infrastructural and environmental projects.
After separating from the World Bank and other International Financial Institutions for decades due to pressure from the Soviet Union, Poland rejoined the World Bank on June 27, 1986. The World Bank was instrumental in financing and providing technical assistance for Poland as it transitioned from a Command Economy into a Market-Oriented Economy. As a middle income country, Poland has worked primarily with the International Bank for Reconstruction and Development since it is not eligible for loans from the International Development Association. Additionally, Poland has had a few projects with the Multilateral Investment Guarantee Agency and the International Finance Corporation. Currently, most of Poland's engagements with the World Bank Group concern environmental concerns and public finances.
South Korea first joined the World Bank Group as a member in 1955. Over the years, South Korea manages to develop its economy in a successful and positive manner. The country now is a financial contributor to the World Bank to help other, rather than an aid recipient in the old days. Under the help and cooperation with the World Bank, South Korea became a rapid growth country in economy begin in the 1970s, and it now became a large shareholder of the institution to help out other developing countries.
Jamaica first joined The World Bank Group (WBG) on 21 February 1963, when the island nation became a member of The International Bank for Reconstruction and Development (IBRD), which lends to middle and low income nations. This occurred the same month as Jamaica joining the International Monetary Fund (IMF), and one year after declaring political independence. Since joining The World Bank, Jamaica has received in excess of $3 billion US Dollars in loans and grants. Jamaican Minister of Finance, Donald Sangster, led the Jamaican delegations to World Bank and International monetary Fund meetings between 1963 and 1966, while also serving as Governor of the World Bank and IMF. Sangster would go on to serve briefly as the Prime Minister of Jamaica.
Japan joined the World Bank Group in August 1952. Loans that were taken out by Japan focused on improving infrastructure, having electrical power generation, improving water, establishing basic industry development and improving transportation. Japan now is the second-largest creditor to the World Bank, and in 1970 established an office in Tokyo.
The World Bank, in seeking to promote development within less developed countries, describes itself as a fund rather than a Bank, by initiating projects for less developed countries in pursuit to end poverty. The World Bank initiates and divides such projects for each Developed country through its 5 internal Institutions: that being MIGA, IDA, IFC, ICSID, and IRD. One target Latin American country was Guatemala. According to recent World Bank data, 8.7% of Guatemala's people met the standard of extreme poverty. This standard is quantified to mean an average income of less than $1.9 a day. Such poverty thus increasingly grew by "half a million" from the time of 2000–2014 With increasingly high poverty and a lack thereof appropriate education in 2016 prompted the World Bank partnership with Guatemala through the partnership.
The World Bank Group is a large international financial institution that continuously provides loans and grants in order to fund capital projects in poor and developing nations across the globe. Its main goal is to reduce poverty worldwide. It consists of five other large international financial banks within in, each providing funding for different types of projects. Belarus joined the World Bank back in 1992 and has since then received over $2.5 billion in lending commitments since then and in the form of grant financing, it has received $31 million, with much of this funding going towards programs that include civil society partners. Currently, Belarus's active portfolio within the World Bank has a total of $933 million, with it containing a total of nine different projects, as well as two more projects that are currently still in preparation in the areas of energy efficiency and higher education. The majority of this funding has been directed towards the themes of pollution management and environmental health, climate change, and rural services and infrastructures, with the majority of the funding going directly into the central government, other agencies and extractives, and forestry sectors of the country, as well as sustainable energy. In looking to have more economic growth, improving the private sector environment within Belarus could help.
Ireland joined the World Bank on August 8, 1957, and has continued to be a member since then. A majority of the money loaned to Ireland from the World Bank was put towards infrastructure projects, such as power and education. Ireland was able to pay back these loans in the predetermined time frames with little to no issue.
Jennifer "DJ" Nordquist is a public policy expert who served as the U.S. Executive Director of the World Bank, representing the U.S. as the largest shareholder at the International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), International Finance Corporation (IFC), and Multilateral Investment Guarantee Agency (MIGA).
References
1 2 Ottenhoff, Jenny (2011). World Bank (Report). Center for Global Development. Retrieved 5 June 2012.
1 2 World Bank. "History". World Bank Group. Archived from the original on 19 May 2016. Retrieved 17 July 2012.
↑ International Bank for Reconstruction and Development. "Background". World Bank Group. Archived from the original on 16 August 2010. Retrieved 17 July 2012.
↑ International Bank for Reconstruction and Development. "Products and Services". World Bank Group. Archived from the original on 16 April 2013. Retrieved 17 July 2012.
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