Bretton Woods Project - Critical voices on the World Bank and IMF

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WBG—World Bank Group

The World Bank Group (WBG) lends over $20 billion to developing countries worldwide. The two main institutions that make up the WBG are the International Bank for Reconstruction and Development (IBRD); and the International Development Association (IDA); The group is completed by three affiliate organisations: the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the International Centre for Settlement of Investment Disputes (ICSID). Membership is not uniform across the institutions.

The president of the WBG is Jim Yong Kim, who is president of all five WBG institutions and also the chairman of the board of Executive Directors (EDs) who preside over the WBG. There are 24 EDs, five of whom are permanent and represent the USA, Japan, Germany, the UK and France; the other 19 EDs are elected by members or groups of members every two years. Saudi Arabia, China and Russia are each alone in a group whereas one group of African countries contains 23 members. Currently half of the EDs are from developed countries whereas only 24 of the 184 member states can be classed as developed.

Each shareholder's (member state) vote is based on its level of financial contribution. There are a fixed number of membership votes, allocated equally to each member state (so called 'basic votes'), and then additional votes are distributed based on size of shareholding. As each institution in the WBG has a slightly different membership and different levels of financial contribution the proportion of votes in each case varies. An 85 per cent majority vote is required to pass any decisions requiring a super-majority, this gives the US veto power in all but one of the institutions - at the IDA the US representative has around 13 per cent of votes. In this case the US and any one of 21 of the 23 remaining representatives may combine to block any critical decisions.

The IBRD (more commonly known as the World Bank) and IDA were established in 1944 and 1960 respectively. They provide loans to countries to aid economic development. Their lending commitments in 2008 were around $13.5 billion and $11.2 billion dollars respectively. The IBRD has 185 members. While both institutions lend to developing countries the focus of the IDA is on poorer countries (those with per capita income less than $1,095) and its financing is made at lower interest rates or as grants - focusing on basic service provision. Seventy-eight countries are eligible to borrow from the IDA and the top three borrowers are Vietnam, India and Bangladesh. IBRD finance comes from the sale of bonds on the international financial markets, loan repayments and accumulated capital reserves. IDA finance comes from a three-year replenishment cycle which solicits contributions from wealthy countries and from income earned on IBRD financing.

The IFC, established in 1956, works closely with the other WBG institutions. It maintains a degree of autonomy as it is independent legally and financially and has its own articles of agreement. Its primary function is to enable private sector investment through mobilising capital on the international financial markets and providing businesses and government with technical support and advice The IFC has 3,100 staff, 181 member countries and lends in 80 countries; 40 per cent of its investments are in the financial sector. As of 2008, the IFC´s worldwide committed portfolio for its own account was $32.3 million and $7.5 million held for participants in loan syndications.

MIGA, established in 1988, was set up to increase certainty for investors by providing political risk insurance to protect against non-commercial risks such as conflict. It also provides capacity building and advice services to help developing countries attract foreign direct investment. Since its creation MIGA has issued nearly $14.7 billion in guarantees for projects in 91 countries with 42 per cent of its activity concentrated in what are considered high-risk, low-income areas.

ICSID is an arbitration forum established in 1966 to facilitate the settlement of disputes between governments and foreign investors. ICSID has 155 signatory member states and in 2008 had 145 (a record number) of pending cases before it. ICSID is legally independent of the other WBG institutions although it is closely linked as its secretariat is funded by the Bank, fee income and by the sale of publications. All of its member countries are members of the Bank and unless a government objects, its World Bank governor sits ex officio on the administrative council.

ICSID cases involve a complaint of a company against a government or vice-versa. Following Argentina's recent economic crisis, and government policy decisions which resulted from it, there are around 30 cases pending against the Argentine government. ICSID is legally independent of national law and domestic courts only responsibility is to enforce decisions made by the forum, in addition neither party has a right to appeal to a domestic court. Cases are often heard in London, Paris or New York which is often far removed from the people whose lives may be affected by the forum´s decisions.

Published: Saturday 27th May 2006, last edited: Monday 28th January 2013

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