5.1 The World Bank Flashcards
What is the world bank?
International institution that provides loans to developing countries - dream of a world without poverty
- Began as international bank for reconstruction and development to drive post war recovery
- Bank channels loans and grants and advises low and middle income countries
How is the world bank split?
- International Bank for Reconstruction and Development (IBRD) - $19bn
- International Development Association (IDA) $13bn
- International Finance Corporation (IFC) $9bn
- Multilateral Investment Guarantee Agency (MIGA)
- International Centre for Settlement of Investment Disputes (ICSID)
Why do we need the world bank?
Helping poor countries in poverty traps
- Growth needed for capital markets
- Lack capital markets - problem of asymmetric information
- Perceived as risky borrowers for long term infrastructure projects, even though potentially high socail rate of reutnr
- World bank, backed with rich countries, could raise capital at low interest rates and lend on to poor countries with small margins
Provide public goods
How does the world bank work?
‘Learning by lending’
- Long term project loans to MICs
- Subsidized loans to poor countries:
- Physical and social infrastructure
- Institutions, social development, public policy infrastructure - Funds sourced by:
- Own capital
-AAA rated bonds (good credit)
- Funds from donors from administering aid and client countries reimbursing
- Short term trust funds - Run by a board of governers - 6 biggest shareholders
How does the world bank work?
‘Learning by lending’
- Long term project loans to MICs
- Subsidized loans to poor countries:
- Physical and social infrastructure
- Institutions, social development, public policy infrastructure - Funds sourced by:
- Own capital
-AAA rated bonds (good credit)
- Funds from donors from administering aid and client countries reimbursing
- Short term trust funds - Run by a board of governers - 6 biggest shareholders
How have the lending sizes evolved?
1954-67:
- Low lending, mainly to Europe and poor countries for infrastructure
- First France
- Marshall plan 1947 - many European countries received aid from other sources
- Shift focus to non European
- Loans for infrastructure help borrower repay loan
1965-80: expansion:
- Loans covering non infrastrucutre - schools, hospitals
- Funds raised from bond market
- Third world debt rose at 20%
80-89: structural adjustment
- Cut in health/education spenidng
- Loans based on structural adjustments
89-today: focus on poverty reduction and environmental concerns
- Millennium project goals (2000) - reduce poverty and increase health standards
- Protect deforestation - not financing projects harming the environment
- Delivering vaccines
How is the spending distributed per sector?
17% Public administration
15% education
11% energy and extractives
13% health
13% social protection
7% agriculture, fishing, forestry
6% water sanitation and waste
8% industry trade and services
3% transport
3% financial sector
4% information and communications technology
What are some criticisms to the World Bank?
- Forces free market approach on borrowers
- Single neo-liberal formula for diverse countries
- Dominated by small number of economically powerful countries, concerned with US/western political and commercial interests than to actually fight poverty
- Bureaucracy
- Neglecting environemntal concerns
What has the world bank achieved?
Projects really ‘learning by lending?’
- Insufficient evaluation of lending operations
Difficult to evaluate:
- Incentives of staff
- No random assignments
- Spillovers
- Short term vs long term impact
- General equilibrium and portfolio effects
What are the forces for change in the world bank?
- Revolution in development finance - MICs like Brazil or India being able to borrow in international markets
- Growth of lending in China - 2010 loaned $110bn to developing countries
- These focus on natural resources and infrastructures to countries lacking world capital markets - BRICS - is this the only path to development tho?
- Growth of regional development banks - IADB, ADB, AIIB
- Brazil development bank has larger balance sheet than world bank; lends to latin America with fewer conditions attached
- CAF (development bank of latin america) funds more latin American infrastructure than World Bank (97% assets from Latin America)
Why may we not need the world bank anymore?
- Focus on poorest countries only
- Focus on cross border problems - climate change, disease
- Certain projects dont attract private sector attention e.g. primary education, healthcare and infrastructure
