Encyclopedia of Money: World Bank

The World Bank, officially the International Bank for Reconstruction and Development, is the largest provider of development assistance to middle-income and low-income countries, directly financing projects and coordinating development assistance from other agencies. It also serves as a clearinghouse of ideas for promoting economic development, and publishes statistical data and research on the state of the world economy.

Aside from negotiating a fixed exchange rate system for international trade, the Bretton Woods Conference of 1944 organized the World Bank under the auspices of the United Nations. The delegates of the Bretton Woods Conference had in mind financing the reconstruction of war-torn Europe and Japan, and the development needs of the poorer areas of the world. On 25 June 1946 the World Bank opened his headquarters in Washington, D.C.

Member countries, now numbering more than 180, purchase stock in the World Bank, which also raises capital by selling bonds in private capital markets. Member governments guarantee the bonds, reducing the interest rate that investors demand and lowering the cost of capital to the bank. The United States is the largest shareholder and the president of the World Bank has always been from the United States.

The first quarter century of the bank’s existence saw an emphasis on financing basic economic infrastructure needed to support industry. Between fiscal years 1961 and 1965 electric power and transportation projects accounted for 76.8 percent of the bank’s lending. The bank continued to extend substantial loans to developed countries until 1967. After Robert McNamara assumed the presidency in 1968, the bank began to channel more resources into projects that directly relieve poverty, increasing bank lending on agriculture and rural development projects from 18.1 percent in fiscal year 1968, to 31 percent in fiscal year 1981.

In 1960 the International Development Association (IDA) came into being as a division of the bank that makes soft loans and interest-free loans to the poorest countries. These countries do not qualify for loans from the World Bank, whose lending philosophy is more conservative. Also affiliated with the World Bank is the International Financial Corporation (IFC), created in 1956 to raise private capital for financing private sector projects. The loans of the IFC are structured on a commercial basis with maturities ranging from 7 to 12 years.

The World Bank is perhaps the foremost world leader on economic development issues. In 1978 the World Bank began publishing the influential World Development Report, combining articles on current development issues and a statistical report of economic indicators for the nations of the world.

Until the 1980s the World Bank mainly financed public enterprises, but since then the bank has affirmed its commitment to financing private sector projects, and used its leadership to strengthen the private sector in Third World countries. The bank promotes reforms conducive to stable macroeconomic environments, and encourages privatization of public enterprises, environmental responsibility, and investments in basic health and education.