World Bank

Introduction

• The World Bank is an international organization dedicated to providing financing, advice, and research to developing nations to aid their economic advancement.
  • The bank predominantly acts as an organization that attempts to fight poverty by offering developmental assistance to middle- and low-income countries.
• The World Bank was created in 1944 out of the Bretton Woods Agreement, which was secured under the auspices of the United Nations in the latter days of World War II
• The World Bank are headquartered in Washington, D.C
• Though titled as a bank, the World Bank, is not necessarily a bank in the traditional, chartered meanings of the word.
  • The World Bank and its subsidiary groups operate within their own provisions and develop their own proprietary financial assistance products, all with the same goal of serving countries’ capital needs internationally
• Through the years, the World Bank has expanded from a single institution to a group of five unique and cooperative institutional organizations, known as the World Banks or collectively as the World Bank Group; the details of which are as follows:

Organisation and Structure

• The World Bank is related to the UN, though it is not accountable either to the General Assembly or to the Security Council
• Each of the bank’s more than 180 member states are represented on the board of governors, which meets once a year.
  • The governors are usually their countries’ finance ministers or central bank governors
• Although the board of governors has some influence on IBRD policies, actual decision-making power is wielded largely by the bank’s 25 executive directors
• Throughout the World Bank’s history, the bank president, who serves as chairman of the Executive Board, has been an American citizen.
• Voting power is based on a country’s capital subscription, which is based in turn on its economic resources
  • Thus, the wealthier and more developed countries constitute the bank’s major shareholders and thus exercise greater power and influence.
• The bank obtains its funds from the capital subscriptions of member countries, bond flotations on the world’s capital markets, and net earnings accrued from interest payments on IBRD and IFC loans

India and World Bank

• The cooperation between the World Bank and India goes back to the foundation of the International Bank of Reconstruction and Development in 1944
• India received its first bank loan of US$34million from the International Bank of Reconstruction and Development in November 1948 for railway rehabilitation
• During the 1950s, the IBRD was India’s sole source of World Bank borrowings
• During the 1960s and 1970s, the IDA accounted for nearly three-fourths of all WB lending to India and, in turn, India was by far the largest recipient of IDA funds, accounting for more than two-fifths of all its lending
• The lending portfolio changed sharply after the 1991 macroeconomic crisis
  • India became one of the last important borrowers in order to undertake structural adjustment lending
• Currently, the World Bank Group (WBG) has approved a $25-30 billion commitment plan for India for the period 2019-22

Projects and Alliances supported by World Bank in India

World Bank Criticism

• Structural under-representation of the Global South
  • One of the central criticisms of the World Bank relates to the political power imbalances in their governance structures where, as a result of voting shares being based principally on the size and ‘openness’ of countries’ economies, poorer countries – often those receiving loans from World Bank – are structurally under-represented in decision-making processes
• Undermining democratic ownership
  • The issue of political power imbalances is exacerbated by another long-standing critique of the Bank: that the economic policy conditions they promote – often attached or ‘recommended’ as part of loans, projects, technical assistance, or financial surveillance – undermine the sovereignty of borrower nations, limiting their ability to make policy decisions and eroding their ownership of national development strategies
• Weak ability to learn from past mistakes
  • The World Bank created the Independent Evaluation Group (IEG) in 2006, integrating several individual accountability mechanisms, and was charged with evaluating the activities of the entire World Bank Group and determining what works, what doesn’t and why.
  • However, the Bank has been criticised for failing to implement the recommendations
• Restricting the macroeconomic environment for human rights
  • At the macroeconomic level, following on from the original Washington Consensus, the Bank continues to push a particular set of macroeconomic policy prescriptions across their member countries.
    • Most typically, these are fiscal consolidation measures (or austerity), and include reducing the public wage bill, introducing or increasing VAT and other indirect regressive taxes in particular, labour flexibilisation, rationalising (cutting) and privatising social services, and targeting social protections and subsidies, while maintaining low levels of inflation, corporate taxation rates and trade tariffs.
  • This ‘pro-cyclical’ approach has been criticised for leading to a decline in economic activity, leading to lower consumption, lower public revenues, lower investment in vital public services, and higher levels of inequality, which in turn also lowers growth
  • Further, Labour unions, for instance, have long opposed the World Bank’s systematic weakening of labour rights either directly through conditionality or indirectly through policy advice in flagship reports, such as the World Bank’s 2018 World Development Report
• Growth-based model unsustainable
  • The growth-based approach to poverty reduction that the World Bank and IMF both promote has immense environmental consequences, as is evidenced by the deepening climate crisis.
  • While the Bank has increasingly tried to account for environmental and climate factors in their work over recent decades, these efforts have largely been limited to attempting to integrate these concerns into a growth-based development model
• Focus on mega-projects
  • Since 2015, there has been a particular emphasis on promoting ‘infrastructure as an asset class’, in order to crowd in institutional investors
  • This policy initiative is highly dependent on mega-infrastructure projects, and currently lacks a framework for aligning such mega-projects with the Paris Climate Agreement or the Sustainable Development Goals (SDGs)

Way forward

• The proposals for more impactful and efficient functioning of World Bank include:
  • Use independent organisations to identify the issues better
    • The Bank has been very effective at large scale implementation and at leveraging resources to take forward clearly defined reform programmes. However, it has not always been good at responding flexibly and adaptively to problems and opportunities as they arise, particularly in fragile states.
    • Hence, the need to engage independent organisations who have the experience and the flexibility to play this role
  • Harness strengths from different specialist areas
    • The Bank’s internal reorganisation is largely complete. It now needs to demonstrate it can connect and harness different professional groups in addressing problems, identifying bottlenecks and advancing innovative solutions
  • Prevent creating monolithic reform programmes as these can stifle complementary initiatives
    • Co-ordination is vital, but there may still be some functions or aspects of reform that bilateral and other agencies are better placed to take forward. If these are well co-ordinated, they will improve the functioning and implementation of the larger reform programmes
    • Hence, while funding large scale initiatives, World Bank must ensure that it doesn’t stifle others who may be better placed to support discrete initiatives
  • Banks should maintain engagement at Different levels
    • Discussions and agreements with ministers and senior staff are essential as authorisation is needed to take forward reform, but this does not make change happen by itself.
    • In this perspective, the Bank needs to ensure that it undertakes multi-layered engagement to secure practical traction and change