Einar H. Dyvik
Research expert covering Nordics and global data for society, economy, and politics
World Bank - statistics & facts
The World Bank was founded together with the International Monetary Fund (IMF) in the Bretton Woods Conference dueing the Second World War in 1944, to promote global financial stability. While closely related and often working together, and both headquartered in Washington D.C., the two are individual, separate institutions. The IMF’s main focus is on securing economic stability by providing loans to struggling countries. The World Bank, on the other hand, focuses on reducing poverty and securing long-term economic development, its strategy thus often being more long-term than that of the IMF. Here, the focus will lie on the World Bank. What is it? how has its focus changed since its establishment? and what are the main points of critique it faces?
Starting in the 1970s, fears of uncontrolled debt in developing countries grew as loans became larger, and with the emergence of neoliberal economic theories in the 1980s, the World Bank started imposing stricter conditions with its loans. The organization sought to encourage economic discipline by implementing so-called structural adjustment programs (SAPs). These included forcing the borrower to reduce public sector spending, liberalize trade, and privatize state-owned enterprises. These measures later received much criticism as they were often economically detrimental, causing many people living in borderline poverty to fall below the poverty line. SAPs were also attached to IMF loans in response to Greece’s debt crisis in the early 2010s, a move that sparked much criticism.
Additionally, the World Bank has received criticism for poor environmental standards. One part of the critique is structural, seeing the World Bank’s focus on economic development as a major issue, as these critics see a focus on economic development as incongruous with environmental protection. Another part is centered on actual investments in fossil fuel projects and megaprojects that have led to the forced removal of indigenous people. Nevertheless, the Bank has adopted an Environmental and Social Framework to secure environmental sustainability, and it promotes investments in for instance renewable energy projects. Moreover, the Bank includes environmental non-governmental organizations (NGOs) in its loans.
Finally, one of the main points of criticism raised at the World Bank (and the IMF) is its power imbalance in favor of developed countries, particularly the United States. Votes are allocated based on a country’s financial contribution to the Bank and on its level of openness. As the U.S. is the largest donor to the Bank, it continues to have the largest share of votes, although reforms of the voting structure have been implemented to target the imbalance. Moreover, the U.S. holds veto power in several central decisions, and for a long time, an unofficial agreement between the U.S. and European countries ensured that the president of the World Bank has traditionally been American. To counter the U.S. dominance of the World Bank, the BRICS countries Brazil, Russia, India, China, and South Africa formed the New Development Bank (NDB) in 2015 to fund development projects in its member countries. Nevertheless, because of its size, established structure, and funding capabilities, the World Bank will, together with the IMF, continue to be the main driver of international development funding worldwide in the foreseeable future.
What is the World Bank?
The World Bank refers to the two organizations: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). While the former provides loans to middle-income countries, the latter provides loans to low-income countries. These two, together with the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID), make up the World Bank Group. The IFC’s main objective is to foster investments in a developing country’s private sector; the MIGA provides insurance against political risks to investors; whereas disputes between an investor and a recipient state are settled by the ICSID.From post-war recovery to structural adjustment programs
The role of the World Bank has changed significantly since its founding in 1944. While first providing loans to European and Asian countries to rebuild after World War II, it changed its focus to poverty alleviation in the early 1970s. Today, its highest commitments are to Sub-Saharan Africa, Europe, and Central Asia. Moreover, while the World Bank initially earmarked loans for larger infrastructure projects, it started providing loans to the social sector when it shifted focus to poverty reduction.Starting in the 1970s, fears of uncontrolled debt in developing countries grew as loans became larger, and with the emergence of neoliberal economic theories in the 1980s, the World Bank started imposing stricter conditions with its loans. The organization sought to encourage economic discipline by implementing so-called structural adjustment programs (SAPs). These included forcing the borrower to reduce public sector spending, liberalize trade, and privatize state-owned enterprises. These measures later received much criticism as they were often economically detrimental, causing many people living in borderline poverty to fall below the poverty line. SAPs were also attached to IMF loans in response to Greece’s debt crisis in the early 2010s, a move that sparked much criticism.
Power imbalance and funding of fossil fuel projects
Next to the use of SAPs, critics have argued that the loans and conditions provided by the World Bank keep borrowing countries economically dependent on wealthier lenders, as they become indebted to them and are therefore obliged to adhere to their conditions. Furthermore, it has been argued that these structures enforce neocolonialism, as low-income countries are often forced to open their economies to investments from abroad, which often means large, multinational corporations based in more developed countries. Additionally, borrowing costs for developing countries are often significantly higher than those of more developed countries, due to the uncertainty around their ability to repay their debt. Some of the poorest countries in the world are struggling with some of the highest interest rates on their debt, leaving them vulnerable to pressure from loan providers.Additionally, the World Bank has received criticism for poor environmental standards. One part of the critique is structural, seeing the World Bank’s focus on economic development as a major issue, as these critics see a focus on economic development as incongruous with environmental protection. Another part is centered on actual investments in fossil fuel projects and megaprojects that have led to the forced removal of indigenous people. Nevertheless, the Bank has adopted an Environmental and Social Framework to secure environmental sustainability, and it promotes investments in for instance renewable energy projects. Moreover, the Bank includes environmental non-governmental organizations (NGOs) in its loans.
Finally, one of the main points of criticism raised at the World Bank (and the IMF) is its power imbalance in favor of developed countries, particularly the United States. Votes are allocated based on a country’s financial contribution to the Bank and on its level of openness. As the U.S. is the largest donor to the Bank, it continues to have the largest share of votes, although reforms of the voting structure have been implemented to target the imbalance. Moreover, the U.S. holds veto power in several central decisions, and for a long time, an unofficial agreement between the U.S. and European countries ensured that the president of the World Bank has traditionally been American. To counter the U.S. dominance of the World Bank, the BRICS countries Brazil, Russia, India, China, and South Africa formed the New Development Bank (NDB) in 2015 to fund development projects in its member countries. Nevertheless, because of its size, established structure, and funding capabilities, the World Bank will, together with the IMF, continue to be the main driver of international development funding worldwide in the foreseeable future.
