World Bank Group | History, Headquarters, Members, Functions | UPSC Notes

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World Bank Group | History, Headquarters, Members, Functions | UPSC Notes

• The World Bank Group is a unique global partnership with 189 member countries. It is made up of five institutions that work together to find long-term solutions that lower poverty and build shared prosperity in developing countries.

• The Bank Group works with country governments, the private sector, civil society organisations, regional development banks, think tanks, and other international institutions on problems like climate change, conflict, food security, education, agriculture, finance, and trade.

• The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) make up the World Bank, which helps governments in developing countries with money, policy advice, and expert help.

• The World Bank Group is made up of five organisations that help with growth.

IBRD, which stands for International Bank for Reconstruction and Development, gives out loans, credits, and funds.

The International Development Association (IDA) helps low-income countries by giving them funds with low or no interest.

The International Finance Corporation (IFC) helps companies and governments spend, get advice, and take care of their assets.

The Multilateral Guarantee Agency (MIGA) protects lenders and investors against war and other political risks.

Investment disputes between companies and countries are settled by the International Centre for the Settlement of Investment Disputes (ICSID).

• All of these efforts help the Bank Group reach its two goals, which are to end extreme poverty by 2030 and improve the shared prosperity of the poorest 40% of the people in all countries.

How did World Bank Come into Existence?

• The Bretton Woods Conference, also called the United Nations Monetary and Financial Conference, was held from July 1 to 22, 1944, in Bretton Woods, New Hampshire, USA. Delegates from 44 countries met there to agree on a set of new rules for international financial and monetary order after World War II.

• The International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF) were two of the most important things that came out of the meeting.

• The International Bank for Reconstruction and Development (IBRD), which began in 1944 and was soon called the World Bank, has grown into a group of five development organisations that work closely together.

• In the beginning, its funds helped countries rebuild after World War II. Over time, the focus changed from rebuilding to developing, with a big focus on building infrastructure like roads, dams, power grids, and irrigation systems.

• When the International Finance Corporation (IFC) was created in 1956, it could start lending money to private companies and banking institutions in developing countries.

• The International Development Association (IDA), which was started in 1960, put more focus on the poorest countries. This was part of a gradual change towards ending poverty becoming the main goal of the Bank Group.

• The International Centre for Settlement of Investment claims (ICSID), which was started in 1966, settles investment claims between investors and countries.

• Founded in 1988, the Multilateral Investment Guarantee Agency (MIGA) protects lenders and investors against political risks like war.

International Bank for Reconstruction and Development (IBRD)

• When the world got back on its feet after World War II, the International Bank for Reconstruction and Development changed its goals to include making the world’s economy grow faster and getting rid of poverty.

• The Bank only gives money directly to sovereign governments or to projects that are backed by sovereign governments. • Right now, the IBRD works on helping countries with a per capita income between $1,026 and $12,475 per year. These countries, like Indonesia, India, and Thailand, often have fast-growing economies that attract a lot of foreign investment and large infrastructure building projects. • At the same time, 70% of the world’s poor live in middle-income countries because the benefits of economic growth aren’t spread evenly across their populations.

• IBRD is run by its Boards of Governors. Each partner country picks one Governor and one Alternate Governor for each Board of Governors. Usually, the position is held by the country’s minister of finance, who is also the head of the country’s central bank. Most of the Board of Governors’ power over everyday things like lending and operations is given to the Board of Directors.

IBRD Board of Directors: At the moment, there are 25 senior directors on the Board of Directors. The President of the World Bank Group is in charge of the Board of Directors. The Governors choose or choose the Executive Directors. The President of the Board of Directors, who is also the President of the World Bank, is chosen by the Executive Directors. Executive Directors are in charge of day-to-day things like loans and running the business. Most of the IBRD’s money comes from the world’s financial markets. Since 1946, it has been able to give more than $500 billion in loans to help fight poverty around the world, with its shareholder countries putting up about $14 billion in capital. Since 1959, the IBRD has kept a triple-A rating. This high credit rating lets IBRD borrow money cheaply and offer developing countries with middle-income access to capital on good terms. This helps make sure that development projects are done in a more sustainable way. IBRD makes money every year from the return on its equity and the small margin it makes on lending. This pays for the running costs of the World Bank, goes into reserves to strengthen the balance sheet, and gives IDA, the fund for the poorest countries, money every year.

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International Finance Corporation (IFC):

IFC is the biggest organisation in the world that helps developing countries, and it only works with the business sector. The Bank Group has set two goals for the world to reach by 2030: end extreme poverty and make sure that all countries are doing well.

IFC is a part of the World Bank Group that works in the private sector to promote economic development. It does this by investing in for-profit and business projects that help reduce poverty and promote development. IFC is also one of the best at getting money from outside sources for projects.

• How the IFC is run

IFC Boards of Governors: Each partner country picks one Governor and one Alternate Governor for each Board of Governors. Usually, the position is held by the country’s minister of finance, who is also the head of the country’s central bank. Most of the daily power is given to the Board of Directors by the Board of Governors.

IFC Board of Directors: The President of the World Bank Group leads the Board of Directors, which is made up of executive directors. The Governors choose or choose the Executive Directors. The amount of share capital each director represents affects how much power they have to vote on issues that come before them. The directors meet regularly to talk about investments, decide what to do with them, and give IFC management general strategy advice.

• Almost all of the money IFC needs for lending comes from the foreign capital markets, where it sells debt obligations. Our borrowings are spread out by country, currency, source, and term so that we can be flexible and save money. Since Standard and Poor’s and Moody’s began rating IFC in 1989, they have both given it a triple-A rating every year. Our low cost of funding and ability to keep access to markets around the world depend on our good credit rating.

• The IFC gives loans to businesses and private projects with terms that are usually between seven and twelve years. It figures out a good repayment plan and grace time for each loan on an individual basis, based on the borrower’s currency and cash flow needs. If a project calls for it, it may offer longer-term loans or longer grace periods. It does not have a strategy of charging the same interest rate on all of its investments. In each case, the interest rate should be negotiated based on all important factors, such as the risks involved and any right to share in profits, etc.

• Through its Global Trade Finance Programme, the IFC makes sure that more than 200 approved banks in more than 80 countries meet their trade payment obligations. This lowers the risk of foreign transactions. The Global Trade Finance Programme gives guarantees to developing market banks to cover payment risks for promissory notes, bills of exchange, letters of credit, bid and performance bonds, supplier credit for capital goods imports, and advance payments.

• IFC tries to show businesses how to be more sustainable, especially when it comes to having good government, helping women in business, and fighting climate change in a proactive way.

International Development Association (IDA)

• The part of the World Bank that helps the poorest countries is called IDA. The International Development Association (IDA) is a group of 173 countries that work together to fight poverty. It does this by giving loans (called “credits”) and grants to programmes that boost economic growth, lower inequality, and make people’s lives better.

• The International Development Association (IDA) is one of the biggest sources of help for the 75 poorest countries in the world, 39 of which are in Africa. It is also the biggest source of grant money for basic social services in these countries.

• The International Development Association (IDA) helps pay for a wide range of development projects that help bring about equality, economic growth, job creation, higher wages, and better living conditions. IDA helps with primary education, basic health care, clean water and sanitation, agriculture, improving the business environment, building infrastructure, and changing the way institutions work.

• IDA is run by its Boards of Governors. Each partner country chooses one Governor and one Alternate Governor for each Board of Governors. Usually, the position is held by the country’s minister of finance, who is also the head of the country’s central bank. Most of the Board of Governors’ power over everyday things like lending and operations is given to the Board of Directors.

The President of the World Bank Group leads the IDA Board of Directors, which is made up of executive directors. The Governors choose or choose the Executive Directors.

• IDA gives loans with special terms. This means that IDA loans have no interest or very low interest, and repayments are spread out over 30 to 38 years, with a grace period of 5 to 10 years. IDA also gives grants to countries that are at risk of debt distress. • To borrow from the IDA’s concessional loan programmes, a country’s gross national income (GNI) per capita must not be more than $1,145 (fiscal year 2019).

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• The Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) are two ways that IDA helps poor countries get out of debt.

International Centre for Settlement of Investment Disputes (ICSID)

• The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) was signed in 1966. This is how ICSID came to be. The Executive Directors of the World Bank made the ICSID Convention, which is a multilateral treaty, to help the Bank reach its goal of encouraging foreign investment.

• In most international investment treaties and many investment laws and contracts, states have decided to use ICSID as a place to settle disputes between investors and states.

• There are more and more bilateral investment treaties (BITs). Many of these treaties have language that tells the ICSID to handle both current and future investment conflicts.

• ICSID lets people settle disagreements through mediation, arbitration, or finding out the facts.

• How ICSID is run: Each Member State has one person on the Administrative Council, and each State has one vote.

o Adopts the ICSID rules for arbitration, mediation, and finding out the facts.

o Approves a yearly report and a budget for the next year.

o Chooses the Secretary-General and the Deputy Secretaries-General.

o Each state puts people on a list of mediators and judges.

o The Secretary-General is in charge of the Secretariat. Helps processes in technical and administrative ways.

o Gives governments and the people training and technical help.

o Publishes books and talks to people about business law to help it grow.

Panel of Arbitrators and Panel of Conciliators of the ICSID: Each ICSID Member State can choose four people for each Panel.

Conciliation Commission or Arbitral Tribunal: The Secretary-General sets up either an Arbitral Tribunal or a Conciliation Commission. Most of the time, tribunals are made up of three arbitrators: one chosen by the investor, one chosen by the State, and one chosen by both sides to be the head arbitrator.

• A separate Conciliation Commission or Arbitral Tribunal looks at each case after hearing proof and legal arguments from both sides. Each case is given its own ICSID case team, which helps with expert advice throughout the process.

Article 53 of the ICSID Convention says that an ICSID decision is final, binding, and can’t be appealed or changed in any way other than what the ICSID Convention says. India is not a member of ICSID.

Multilateral Investment Guarantee Agency (MIGA)

MIGA is a part of the World Bank Group, and its job is to encourage cross-border investment in developing countries by giving guarantees (political risk insurance and credit enhancement) to investors and lenders. MIGA was created to supplement public and private sources of investment insurance against non-commercial risks, such as currency inconvertibility and transfer restrictions, government expropriation, war, terrorism, and civil disturbances, and breaches of contract.

• In 1985, MIGA sent a conference to the Board of Governors of the IBRD that outlined its main goals. This helped MIGA become the newest member of the World Bank Group in 1988.

• The Council of Governors of MIGA has the power to change the Convention.

• When the agency opened for business, it did so as a different legal and financial entity. Anyone who was a member of the IBRD could join.

• How MIGA is run: MIGA is run by its Council of Governors, which is made up of representatives from its partner countries. The Council of Governors is in charge of the company, but most of that power is given to MIGA’s Board of Directors.

Board of Directors of the MIGA: The Board of Directors is made up of directors, and when something comes before MIGA, they vote on it. Each director’s vote is weighted according to the total share capital of the member nations that the director represents. • MIGA wants to encourage foreign direct investment in developing countries to boost economic growth, reduce poverty, and improve people’s lives.

How to get into the World Bank Group

• According to the IBRD Articles of Agreement, a country must first join the International Monetary Fund (IMF) before it can join the Bank.

• If a country is a part of IBRD, it can join IDA, IFC, and MIGA.

• IBRD members and countries that are a party to the Statute of the International Court of Justice (ICJ) can join ICSID if they are invited by the ICSID Administrative Council and two-thirds of its members vote in favour.

The World Bank’s most important reports

• Ease of Doing Business (this magazine has stopped coming out).

• Human Capital Index.

• Report on the World’s Development.

• Other recent publications include: a World Bank paper on poverty in India

South Asia Economic Focus (Once Every Two Years) Groundswell report

Coopeation between World Bank Group and India

India was one of the first 44 countries to sign the agreements that created the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF) at Bretton Woods. India was also one of the founding members of the International Finance Corporation (IFC) in 1956 and the International Development Association (IDA) in 1960. In January 1994, India became a member of the MIGA.

• India doesn’t belong to ICSID. India said that the ICSID Convention wasn’t fair because the rules for arbitration in the convention favoured the wealthy countries. In ICSID, the head of the World Bank is the head of the Centre. Arbitrators are chosen by the Chairman. If the arbitration decision isn’t good enough, the party who lost can appeal to a panel, which will also be made up of people from the ICSID. There is no way for an Indian court to review the award, even if it is against the public interest. • The IBRD began lending to India in 1949 with a loan to the Indian railways. The IFC and IDA made their first investments in India in 1959 and 1961, respectively.

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• During the 1950s, India could only borrow money from the World Bank through the IBRD.

• By the end of the decade, India’s growing debt problems were a big reason why the World Bank (WB) group started the International Development Association (IDA), which gives soft loans.

• By the end of the 1960s, the United States, which had been India’s biggest source of money from outside the country until then, had cut its foreign aid programme by a lot. Since then, the WB has become the most important source of long-term financing from the government.

• During the 1960s and 1970s, almost three-quarters of all World Bank loans to India came from the IDA. India, on the other hand, was the biggest recipient of IDA funds, getting more than two-fifths of all IDA loans.

• In the 1980s, India’s share of IBRD lending grew sharply, thanks to its improving creditworthiness and the Indian government’s lessening aversion to non-concessional borrowing. • In the 1990s, India’s share of IDA fell sharply because China joined the WB in 1980 and started claiming its own share of the limited IDA resources, the economy of Africa got worse, and India did better.

• During the 1980s, the WB changed its focus to focus on policy changes and more economic liberalisation. However, it kept lending money to poorly run public sector institutions in India and didn’t criticise India’s closed economy as much as it could have.

• The stock of loans changed a lot after the macroeconomic crisis of 1991. Almost right away, India became one of the last major WB borrowers to take advantage of structural adjustment loans. These loans helped finance, tax, and investment and trade policy changes.

• India is currently a “blend” country, which means it is moving from lower middle-income to middle-income, and both IDA and IBRD are willing to give it money.

• The World Bank’s biggest IBRD client is India. Between 2015 and 2018, India got about $10,2 billion in loans from the World Bank.

• The World Bank Group (WBG) has agreed to give $25 billion to $30 billion to India between 2019 and 2022.

• MIGA Performance Standards are environmental and social standards that help to plan and carry out projects that are good for the earth and people. MIGA would give investors a breach of contract insurance as one option for the Indian market. Under the terms of the deal, if the government doesn’t do what it’s supposed to, MIGA can come and cover that risk for investment.

• In July 2020, the World Bank and the Government of India signed a deal for an Emergency Response Programme for Micro, Small, and Medium Enterprises (MSMEs) worth USD 750 million.

The World Bank gave India $1 billion in May 2020 to speed up the Covid-19 Social Protection Response Programme.

• India and the World Bank signed a $40 million deal for the Meghalaya Health Systems Strengthening Project in November 2021.

The goal of the project is to put money into infection prevention and control so that future outbreaks, pandemics, and health problems can be dealt with better.

It also wants to protect the environment, improve the standard of health services, and make sure patients are safe.

Why is there a Need for Reforms within the World Bank?

• Some critics have said that the World Bank’s “Structural Adjustment Programme” (SAP) is really just a cover for World Capitalism and that rich countries still have the most power in the bank. SAP is a set of “free market” economic policy changes that poor countries have to make in order to get loans from the World Bank.Some people say that SAP policies have made the gap between the rich and the poor bigger, both locally and around the world.

• India, China, and some other Asian and Latin American countries should be given their rightful place and role in the world economy.

• The debate about who should be the next leader should be used to give people time to think about the purpose of the multilateral body, the role it should play in the future, the need to make multilateralism more inclusive, and the steps that need to be taken to help emerging economies and developing countries.

• If the World Bank doesn’t change to fit the new world order, rising countries may go their own way.

For example, China’s creation of the Asia Infrastructure Investment Bank (AIIB). This would be a sign of the rise of multi-polarity without multilateralism, and it would cause different countries to have conflicting goals and values.

• The World Bank needs major changes if the current world order is to be rethought and if rising powers and developing countries are to have a say in this organisation.