International Bank for Reconstruction and Development

International Bank for Reconstruction and Development or World Bank, specialized United Nations agency established at the Bretton Woods Conference in 1944. A related institution, the International Monetary Fund (IMF), was created at the same time. The chief objectives of the bank, as stated in the articles of agreement, are “to assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes [and] to promote private foreign investment by means of guarantees or participation in loans [and] to supplement private investment by providing, on suitable conditions, finance for productive purposes out of its own capital…”

The bank grants loans only to member nations, for the purpose of financing specific projects. Before a nation can secure a loan, advisers and experts representing the bank must determine that the prospective borrower can meet conditions stipulated by the bank. Most of these conditions are designed to ensure that loans will be used productively and that they will be repaid. The bank requires that the borrower be unable to secure a loan for the particular project from any other source on reasonable terms and that the prospective project be technically feasible and economically sound. To ensure repayment, member governments must guarantee loans made to private concerns within their territories. After the loan has been made, the bank requires periodic reports both from the borrower and from its own observers on the use of the loan and on the progress of the project.

In the early period of the World Bank's existence, loans were granted chiefly to European countries and were used for the reconstruction of industries damaged or destroyed during World War II. Since the late 1960s, however, most loans have been granted to economically developing countries in Africa, Asia, and Latin America. The bank has given particular attention to projects that could directly benefit the poorest people in developing nations by helping them to raise their productivity and to gain access to such necessities as safe water and waste-disposal facilities, health care, family-planning assistance, nutrition, education, and housing. Direct involvement of the poorest people in economic activity has been promoted by providing loans for agriculture and rural development, small-scale enterprises, and urban development. The bank has also expanded its assistance to energy development and ecological concerns.

Members of the World Bank must buy shares of the capital stock of the bank. The minimum number of shares that a member nation must purchase varies according to the relative strength of its national economy. Currently, the United States is the largest shareholder, followed by Japan, Germany, the United Kingdom, and France.

The bank’s working funds are derived from sales of its interest-bearing bonds and notes in capital markets of the world, from repayment of earlier loans, and from profits on its own operations. It has earned profits every year since 1947.

All powers of the bank are vested in a board of governors, comprising one governor appointed by each member nation. The board meets at least once annually. The governors delegate most of their powers to 24 executive directors, who meet regularly at the central headquarters of the bank in Washington, D.C. Five of the executive directors are appointed by the five member states that hold the largest number of capital shares in the bank. The remaining 19 directors are elected by the governors from the other member nations and serve two-year terms. The executive directors are headed by the president of the World Bank, whom they elect for a five-year term, and who must be neither a governor nor a director. The bank currently has 184 members.

The World Bank is part of the World Bank Group, which includes four other financial institutions. The International Finance Corporation (IFC), established in 1956, invests in private enterprises in developing countries to promote economic development. The International Development Association (IDA), established in 1960, provides long-term, interest-free loans to poor countries that cannot qualify for loans at market-based interest rates. The International Center for Settlement of Investment Disputes (ICSID), established in 1966, helps to settle disputes between foreign investors and national governments. The Multilateral Investment Guarantee Agency (MIGA), established in 1988, is designed to encourage foreign investment by insuring investors against loss from noncommercial risks, such as war and civil disturbances.