The World Bank

Its Purpose, History, Duties and Mission

Front of the World Bank Group building in Washington
••• Win McNamee / Getty Images

The World Bank is an international organization that helps emerging market countries to reduce poverty. Its first goal is to end extreme poverty. It wants no more than 3% of people to live on $1.90 a day or less by 2030. Its second goal is to promote shared prosperity. It wants to improve the incomes of the bottom 40% of the population in each country. Since 1947, the World Bank has funded more than 12,000 projects.

The World Bank is not a bank in the conventional sense of the word. Instead, it consists of two organizations. One is the International Bank for Reconstruction and Development. It provides loans, credit, and grants.

The second is the International Development Association. It provides low- or no-interest loans to low-income countries.

The Bank works closely with three other organizations in the World Bank Group:

  1. The International Finance Corporation (IFC) provides investment, advice, and asset management to companies and governments.
  2. The Multilateral Investment Guarantee Agency (MIGA) insures lenders and investors against political risk such as war.
  3. The International Centre for the Settlement of Investment Disputes (ICSID). It settles investment disputes between investors and countries.

The Bank's 189 member countries share ownership. The United States has a controlling voting interest.

World Bank Purpose and Function

The World Bank provides low-interest loans, interest-free credit, and grants. It focuses on improving education, health, and infrastructure. It also uses funds to modernize a country's financial sector, agriculture, and natural resources management.

The Bank's stated purpose is to "bridge the economic divide between poor and rich countries." It does this by turning "rich country resources into poor country growth." It has a long-term vision to "achieve sustainable poverty reduction."

To achieve this goal, the Bank focuses on several areas:

  1. Overcome poverty by spurring growth, especially in Africa.
  2. Help reconstruct countries emerging from war, the biggest cause of extreme poverty.
  3. Provide a customized solution to help middle-income countries remain out of poverty.
  4. Spur governments to prevent climate change.
  5. Work with partners to bring an end to AIDS.
  6. It also manages international financial crises and promotes open trade. 
  7. Work with the Arab League on three goals. They are to improve education, build infrastructure, and provide micro-loans to small businesses.
  8. Share its expertise with developing countries. Publicize its knowledge via reports and its interactive online database.

The Head of the World Bank Group

On February 6, 2019, President Donald Trump nominated David Malpass to be president of the World Bank. He was undersecretary of the U.S. Treasury Department for international affairs. Malpass had criticized bank lending to China. Now he needs the support of China and Japan who are the top two World Bank shareholders after the United States. He was officially approved on April 9, 2019. The administration had also considered Indra Nooyi, former PepsiCo Inc chief executive, and Ray Washburne, CEO of Overseas Private Investment Corp.

The World Bank president reports to a 25-member Board of Executive Directors. Among the contributing countries are France, Germany, Japan, the United Kingdom, and the United States.

The person nominated by the president of the United States has been selected the World Bank president since its founding. The voting power of the United States is 15.49%, making it the largest shareholder. Many members complain that the Bank represents the interests of the developed world and not the poor countries it assists.

Jim Yong Kim, M.D., Ph.D., was president from 2012 to 2019. He resigned on February 1, 2019, three years before his term ends. He joined private equity fund Global Infrastructure Partners. Dr. Kim had been the president of Dartmouth College. He advocated for improved health services.

Robert Zoellick was president from 2007 to 2012. During President George H.W. Bush's administration, Zoellick served with Secretary of State James Baker, III, as Under Secretary of State for Economic and Agricultural Affairs. Zoellick held executive positions in Fannie Mae from 1993 to 1997 and the Office of Trade Representative from 2001 to 2005. From there, he went to the State Department in 2005 until 2006 and then on to Goldman Sachs from 2006 to 2007.

The Bank has more than 10,000 employees from over 160 countries.

The World Bank's Fights Climate Change

The World Bank has joined the fight against climate change because it could push another 100 million people into poverty by 2030. It's increased climate financing to 28% of its portfolio. That includes funding nations' plans to add 30 gigawatts of renewable energy by 2020. It also supports early warning systems for 100 million people. It's developing climate-smart agriculture for 40 countries. The Bank also uses the true cost of carbon in all its projects.

Statistics and Reports

The World Bank provides a wealth of downloadable data for more than 200 countries. In 2010, the Bank launched a new Open Data website. It provides free access to 298 major indicators, including:

  • Climate change, the environment, and energy.
  • Health, such as life expectancy.
  • Urban development and infrastructure.
  • Labor, income, and education.
  • Government, economic policy, and sovereign debt.
  • Demographics such as poverty, gender, and aid effectiveness.
  • Business, agriculture, and financial areas.

The Bank analyzes development issues in depth, including the annual World Development Report. Its research reports examine global trends in trade, financial flows, and commodity prices. It explains their impacts on developing countries. The Bank also publishes the World Development Indicators and Global Development Finance. It provides the Little Data Book, Little Green Data Book, and The World Bank Atlas.

History

The 1944 Bretton Woods Conference established the World Bank. Its loans helped European countries rebuild after World War II. That made it the world's first multilateral development bank. 

It was funded through the sale of bonds. Its first loans were to France and other European countries. Since then, the Bank has worked with developing countries, like India and China, on projects that include rail.

World Bank lending became controversial. Many countries used their loans to prevent a sovereign debt default. Their debt was often a result of overspending and extensive borrowing. Even with the World Bank’s help, many countries devalued their currencies. That caused hyperinflation. 

To combat this, the Bank required austerity measures. The country had to agree to cut back on spending and support its currency. Unfortunately, this usually caused a recession, making it difficult to repay the Bank's loans. 

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