WORLD BANK

Introduction: The IBRD was established at the same time as the IMF to tackle the problem of long term investment. IMF: designed to provide temporary assistance in correcting BOP difficulties; an institution was reqd. to assist long term investment. The WB was established as a long term lending institution. The WB is an inter-governmental institution, the capital stock of which is entirely owned by its member nations.

History:
The IBRD (WB) was established on December 25, 1944, after the Bretton Woods Conference . The global war had completely dislocated multilateral trade and had caused massive destruction to life and property. There was a need for promptly reconstructing war damaged economies. There was a huge disparity between the incomes and std. of living of people in the developed and developing countries, and there was a need to develop the economies of these countries.

Objectives:
The objectives of the IMF and WB are complementary. Both aim at increasing the level of NI and std. of living of member nations. Both serve as lending institutions, the IMF for short term (current a/c), the WB for long term (capital a/c). Both aim at promoting balanced growth of IT. However, WB is a developmental financial institution, whereas the IMF is an international monetary system.

Functions:
Article 1 of the IBRD agreement states the principal functions of the IBRD as: To assist in the reconstruction and development of the territories of its members by facilitating the investment of capital for productive purposes To promote private foreign investment by means of guarantee of participation in loans and other investments made by private investors and when private capital is not available on reasonable terms, to make loans for productive purposes available out of its own resources or from funds borrowed by it.

contd.
To promote long term balanced growth of IT and the maintenance of equilibrium in BOP by encouraging international investment for the development of the productive resources of members.

To arrange loans so that more useful and urgent projects, large and small alike, will be dealt with first, where private capital is not available on reasonable terms.

Membership and Organization:

Only those countries, which are members of the IMF can be considered for the membership of the WB. Subscriptions to the capital stock of the WB are related to each members quota in the IMF, which reflects a country's relative eco. strength. Like the IMF, the WBs structure is organized on a three tier basis: A Board of Governors Executive Directors A President

contd. The WB is like a co-operative, where its 185 member countries are shareholders. The shareholders are represented by a Board of Governors, who are the ultimate policy makers at the WB. The Governors are generally the member countries Ministers of Finance or Development. They meet once a year at Annual Meetings, and delegate responsibilities to 24 Executive Directors who work on-site.

contd.
The 5 largest stakeholders (US, UK, France, Germany, and Japan) appoint an Executive Director, while other member countries are represented by 19 Executive Directors. The Executive Directors make up the Board of Directors. The President of the WB chairs the meetings of the Board of Directors. He is elected on a 5 year renewable term.

The Banks Lending Operations: The bank gives loans to its members in any one or more of the following ways: By granting direct loans from its own funds By granting loans out of the funds raised in the market of a member or otherwise borrowed by the Bank By guaranteeing in whole or part, loans given by private investors through the investment channels.

contd. Before sanctioning or guaranteeing a loan, the Bank ensures that: The project for which the loan is asked for has been carefully examined by a competent committee as regards the merits of the proposal. The borrower has reasonable prospects for repayment The loan is meant for productive purposes

Technical Assistance:
Apart from giving loan assistance to its members for various developmental projects, the Bank has also been giving technical assistance to its members , particularly with regard to: Defining priorities among different projects Modifications in the technical plans of projects to reduce costs and increase efficiency Administrative or organizational arrangements for a project or for its financing, including raising local capital

International Development Association (IDA):

The IDA was established in 1960, to finance less developed members on a soft loan basis. Objectives: To provide development finance on easy terms to less developed member countries To promote eco. dev., increase productivity and thus raise std. of living in underdeveloped areas.

 Thus, the IDA is viewed as a means of furthering the development activities of the WB and as a supplement to the Banks activities. The IDA is to support projects which are calculated to contribute to the development of the country concerned, whether they are directly productive or not. The IDA charges nominal rates of interest on its loans and grants credit for dev. schemes and projects.

 The IDA is one of the largest sources of assistance for the worlds 80 poorest countries, 39 of which are in Africa. It is the single largest source of donor for basic social services in the poorest countries. The IDA loans (known as credits) are on concessional terms. This means that they have nominal or no interest charge and repayments are stretched over 35 to 40 years, including a 10 year grace period.