The World Bank Essay

The World Bank has more than 60 years of experience in aiding developing countries and is a primary institution in governing the globalization process. In 2007 the World Bank provided US$23.6 billion for 279 projects in developing countries all over the world. The bank is currently involved in more than 1,800 projects in virtually every sector and developing country. The projects cover a very wide spectrum such as providing microcredit in Bosnia and Herzegovina, raising acquired immunodeficiency syndrome (AIDS)–prevention awareness in Guinea, supporting female education in Bangladesh, improving healthcare delivery in Mexico, and helping East Timor rebuild upon independence and India rebuild Gujarat after a devastating earthquake.

The World Bank’s headquarters is in Washington, D.C., and its staff is composed of approximately 10,000 employees. The World Bank was established on July 1, 1944, during the Bretton Woods conference. Its resources come from all developed countries, considering their national wealth. The fact of being part of the globalization process does not reduce the role of the Bank. It has shown its ability to adapt to changes in the international financial system. The flexibility of the institution is its main advantage in maintaining a position of leadership among multilateral organizations.

The origins of the World Bank, its organization, and its interventions are the three main aspects to understanding this institution. The original core of the World Bank was composed of the International Bank for Reconstruction and Development (IBRD), which was created together with the International Monetary Fund (IMF) and became operative in 1946. The IBRD was created with the dual goal of aiding the reconstruction of countries that were damaged by World War II and promoting the progress of developing countries. Since the second half of the 1950s, the sound economic growth of western European countries and Japan and the end of colonialism had rapidly moved the center of the action of the Bank. In fact, the organization directed its attention from the financing of postwar reconstruction to aid toward developing countries. The first loans were at a market rate but with long terms of expiration. These loans mainly financed investment projects with the aim of increasing capital accumulation. Only in the 1960s and with the increasing number of recently independent countries that were poor both in capital and in technology did the World Bank start to give technical assistance alongside financing.

During the first years of activity, it became evident that the investments in high-cost infrastructures could not be done at market conditions. Therefore, in 1960, the need to finance at favorable conditions was realized by the International Development Agency (IDA), which together with the IBRD is part of the World Bank Group.

The goal of financing the private sector is forbidden to the World Bank by its statute. However, those limits were avoided by the creation of the International Finance Corporation (IFC) in 1956. Ten years later, the International Center for the Settlement of Investment Disputes (ICSID) was created with the aim of protecting direct investments to developing countries in disputes with multinational corporations and national governments. In its entirety, the World Bank is a financial conglomerate active in many fields from loans at market conditions to governments (IBRD), interest-free loans (IDA), to the private sector (IFC) and the settlement of investment disputes (ICSID).

For the last 60 years, the focus of the activity of the World Bank has been concentrated in two domains: technical consultancy and lending. Technical assistance and analysis of development policies are closely related. The selection of priority areas toward which the limited resources of the Bank are allocated is the result of the study of development strategies at a global, regional, and national level. The simulation of long-term perspectives of the integration of the world economy (global economic prospect) shows a typical analytical contribution of the Bank in the selection and evaluation of development policies. For example, the effects of stopping aid to sub-Saharan Africa is considered to cause a reduction of more than 0.5 percent of economic growth and it justifies the concentration of aid in that region. The global nature of the members of the Bank and the long tradition of analysis of development are the main reasons why the Bank is considered a center of excellence whose studies are a point of reference in the debate on the reduction of poverty. The analysis is basically operative and its goal is to identify effective development policies to close the gap between rich and poor countries.

The activity for which the Bank was originally established is the financing of countries that do not have access to capital markets. Thanks to the commercial and financial liberalizations, capital markets have been growing in the last 40 years. During the financial crises at the beginning of the 1980s and at the end of the 1990s, financial and multilateral institutions had a stabilizing role compensating in part the interruption of financial flows to developing countries. On the contrary, in the last three years, the expansion of global liquidity has sustained the growth of direct investments. This fact has led many countries to an early closing of their position with the World Bank and the IMF. Furthermore, the Bank contributes to the stabilization of financial flows to developing countries protecting the poorest countries from the volatility of capital markets. Recently, the Bank has been gradually reducing its financial role of supporting developing countries. However, it is not possible to conclude whether it is a cyclical or structural phenomenon because of the current situation in the international financial markets.

Fighting poverty requires a relevant intervention both in terms of infrastructures and in terms of legal norms. The cost for the construction of roads, schools, and hospitals is as relevant as that of training teachers, physicians, and bureaucrats. The necessary means are often insufficient for poor countries and, therefore, the international community provides them through interest-free credits and grants. Of the entire amount of aid to developing countries, almost 70 percent comes directly from rich countries (bilateral assistance), while 30 percent is given by international institutions such as the United Nations or the World Bank (multilateral assistance). At the same time, the World Bank increases its capital with the emissions of bonds on financial markets.

The financial flows of development assistance have constantly grown in the last 10 years and in 2005 reached US$105 billion. However, only 64 percent of this amount is for investments, while the rest counts as debt cancellation. The World Bank tries to coordinate development aid due to the fragmentation and proliferation of funds, that is, there are more than 230 international organizations whose main activity concerns development.



  1. Varouj A. Aivazian and Eric Santor, “Financial Constraints and Investment: Assessing the Impact of a World Bank Credit Program on Small and Medium Enterprises in Sri Lanka,” Canadian Journal of Economics (v.41/2, 2008);
  2. Patricia Clarke Annez, Gwénaelle Huet, and George E. Peterson, Lessons for the Urban Century: Decentralized Infrastructure Finance in the World Bank (World Bank, 2008);
  3. Ariel Buria, The IMF and the World Bank at Sixty (Anthem Press, 2005);
  4. “Finance and Economics—Economics Focus—How Good Is the World Bank’s Research?” Economist (v.382/8511, 2007);
  5. Devesh Kapur et al., The World Bank: Its First Half Century (Brooking Institution, 2005);
  6. The World Bank, Global Economic Prospect (The World Bank, 2007).


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