How the World Bank works

Most people have heard of the World Bank, but many don’t know exactly what it does.

In the below article, we’ll look at its history and its role in today’s global economy.

The agreement setting up the World Bank was signed here at the Mt. Washington Hotel in Bretton Woods, NH.

Out of the ashes of WW2...

The World Bank started life in the 1940s when the allies began to meet to discuss how to create a new economic order following the inevitable defeat of Nazi Germany and its allies. They wanted to create an international financial system that would help to avoid the economic crises that had led so many countries to descend into turmoil and political instability. 

At the same time that the IMF was established, so was the International Bank for Reconstruction (IBRD) and Development. The focus was spent mostly on the IMF, the IBRD was very much a sidelined sister organisation in the early days.

The IBRD initially focused on European reconstruction following the end of WW2 but quickly began to become more and more international in its outlook.

In 1960 the International Development Association was formed, an organisation focused on providing financial support to the poorest economies. Together they came to be known collectively as the World Bank.

The five organisations of the World Bank Group...

Below are the five organisations that make up the World Bank Group:

International Bank for Reconstruction and Development (IBRD): the first organisation in the group to be established in 1944. This organisation today provides loans to middle-income countries.

In their own words:

” [The] IBRD provides financial products and policy advice to help countries reduce poverty and extend the benefits of sustainable growth to all of their people.

International Finance Corporation (IFC): this was founded in 1956 and is an organisation that provides financial support to the private sector in developing economies.

In their own words:

“[The IFC] advances economic development and improves the lives of people by encouraging the growth of the private sector in developing countries. We apply our financial resources, technical expertise, global experience, and innovative thinking to help our partners overcome financial, operational, and other challenges.

International Development Association (IDA): this organisation was set up in 1960 and is focused on providing loans to the world’s poorest countries.

In their own words:

“[The] IDA aims to reduce poverty by providing zero to low-interest loans (called “credits”) and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions.

International Centre for Settlement of Investment Disputes (ICSID): this was also set up in the ’60s and is focused on supporting responsible government investment

In their own words:

“[The] ICSID is the world’s leading institution devoted to international investment dispute settlement. It has extensive experience in this field, having administered the majority of all international investment cases. States have agreed on ICSID as a forum for investor-State dispute settlement in most international investment treaties and in numerous investment laws and contracts.

Multilateral Investment Guarantee Agency (MIGA): this is the newest organisation in the group and was established in 1988. It essentially acts as an insurer for investments in the world’s developing countries.

In their own words:

“Our mandate is to promote cross-border investment in developing countries by providing guarantees (political risk insurance and credit enhancement) to investors and lenders.”

The World Bank Group in 2023...

The Group is today headquartered in Washington DC. Its parent organisation is the United Nations. Not all countries are members of every organisation, how every most are members of at least 4/5 of its organisations.

It is headed by a President, usually appointed by the US President (as the US is the largest financial contributor.) The current President is David Malpass, a former Trump advisor and Trump-appointed Under-Secretary at the US Treasury.

Over 15,000 people from all corners of the world work at the World Bank and are spread across the Globe.

They currently have a shared mission with two key pillars…

To end extreme poverty: by reducing the share of the global population that lives in extreme poverty to 3 percent.

To promote shared prosperity: by increasing the incomes of the poorest 40 percent of people in every country.

The glossy video above produced by the World Bank gives a really nice overview of their history and their work.

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