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World Bank

is a term used to describe an international financial institution that provides leveraged loans^[2] to developing countries for capital programs. The World Bank has a stated goal of reducing poverty.

The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), whereas the latter incorporates these two in addition to three more:^[3] International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes (ICSID).

History

John Maynard Keynes (right) represented the United Kingdom at the conference, and Harry Dexter White (left) represented the United States.

The World Bank is one of five institutions created at the Bretton Woods Conference in 1944. The International Monetary Fund, a related institution is the second. Delegates from many countries attended the Bretton Woods Conference. The most powerful countries in attendance were the United States and United Kingdom which dominated negotiations.^[4]

Although both are based in Washington, the World Bank is by custom headed by an American, while the IMF is led by a European.

[edit] 1945–1968

From its conception until 1967 the bank undertook a relatively low level of lending. Fiscal conservatism and careful screening of loan applications was common. Bank staff attempted to balance the priorities of providing loans for reconstruction and development with the need to instill confidence in the bank.^[5]

Bank president John McCloy selected France to be the first recipient of World Bank aid; two other applications from Poland and Chile were rejected. The loan was for $987 million, half the amount requested and came with strict conditions. Staff from the World Bank monitored the use of the funds, ensuring that the French government would present a balanced budget and give priority of debt repayment to the World Bank over other governments. The United States State Department told the French government that communist elements within the Cabinet needed to be removed. The French Government complied with this diktat and removed the Communist coalition government. Within hours the loan to France was approved.^[6]

The Marshall Plan of 1947 caused lending by the bank to change as many European countries received aid that competed with World Bank loans. Emphasis was shifted to non-European countries and until 1968, loans were earmarked for projects that would enable a borrower country to repay loans (such projects as ports, highway systems, and power plants).

[edit] 1968–1980

From 1968 to 1980 the bank concentrated on meeting the basic needs of people in the developing world.^{[citation needed]} The size and number of loans to borrowers was greatly increased as loan targets expanded from infrastructure into social services and other sectors.^{[citation needed]}

These changes can be attributed to Robert McNamara who was appointed to the presidency in 1968 by Lyndon B. Johnson.^[7] McNamara imported a technocratic managerial style to the Bank that he had used as United States Secretary of Defense and President of the Ford Motor Company.^[8] McNamara shifted bank policy toward measures such as building schools and hospitals, improving literacy and agricultural reform. McNamara created a new system of gathering information from potential borrower nations that enabled the bank to process loan applications much faster. To finance more loans, McNamara told bank treasurer Eugene Rotberg to seek out new sources of capital outside of the northern banks that had been the primary sources of bank funding. Rotberg used the global bond market to increase the capital available to the bank.^[9] One consequence of the period of poverty alleviation lending was the rapid rise of third world debt. From 1976 to 1980 developing world debt rose at an average annual rate of 20%.^[10][11]

[edit] 1980–1989

In 1980 A.W. Clausen replaced McNamara after being nominated by US President Jimmy Carter. Clausen replaced a large number of bank staffers from the McNamara era and instituted a new ideological focus in the bank. The replacement of Chief Economist Hollis B. Chenery by Anne Krueger in 1982 marked a notable policy shift at the bank. Krueger was known for her criticism of development funding as well as third world governments as rent-seeking states.

Lending to service third world debt marked the period of 1980–1989. Structural adjustment policies aimed at streamlining the economies of developing nations (at the expense of health and social services) were also a large part of World Bank policy during this period. UNICEF reported in the late 1980s that the structural adjustment programs of the World Bank were responsible for the “reduced health, nutritional and educational levels for tens of millions of children in Asia, Latin America, and Africa”.^[12]

[edit] 1989–Present

From 1989 World Bank policy changed in response to criticism from many groups. Environmental groups and NGOs were incorporated in the lending of the bank in order to mitigate the effects of the past that prompted such harsh criticism.^[13] Bank projects "include" green concerns.

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