PARTNER PROFILE: WORLD BANK
In this section:
World Bank Fights Poverty, Promotes Growth in
Poor Countries
The International Center for Settlement of Investment
Disputes (ICSID)
The Multilateral Investment Guarantee Agency
(MIGA)
The International Finance Corporation (IFC)
World Bank Fights Poverty, Promotes Growth in Poor Countries
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Groundbreaking ceremony for the West African Gas Pipeline
(WAGP). President John A. Kufuor of Ghana sits in excavator
while ministers of energy from Benin and Ghana—Kamarou
Fassasi and Paa Kwesi Nduom, respectively—look
on. USAID provided $6 million for planning and feasibility
work. The World Bank provided $125 million in loan guarantees.
The WAGP is a 430-mile, $617 million public-private
partnership that will deliver natural gas from Nigeria
to Benin, Ghana, and Togo for electrical power generation
and commercial uses.
USAID
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The World Bank—whose headquarters is in a cluster of
buildings just west of the White House and a few blocks from
USAID headquarters—is an international organization of
184 countries devoted to fighting poverty, stabilizing the
economies of countries around the world, and doing many other
tasks that complement those of USAID.
The Bank provided $17 billion in loans and grants in 2004,
making it the world’s largest development agency, with
a staff of about 10,000 in Washington, D.C., and in the field.
The United States is the Bank’s largest contributor,
giving nearly 17 percent of its funds, which is double that
of the next largest contributor, Japan.
The Bank’s president is traditionally nominated by
the U.S. president and then elected by the member nations.
Voting is weighted according to the size of a nation’s
contributions.
The U.S. Department of the Treasury directs U.S. policy
toward the Bank.
Like the Marshall Plan, the World Bank was formed at the
end of World War II to help rebuild Europe. Once that huge
task was accomplished, both the World Bank and U.S. aid programs
(which became USAID in 1961) focused on helping poor countries
worldwide.
The World Bank’s large development budget, global reach,
and wide range of activities—combined with its many development
experts—make it a major player in shaping development
policy in poor countries. Working with its sister organization,
the International Monetary Fund, the Bank also promotes macroeconomic
stability by helping countries maintain stable currencies
and open trade policies.
Unlike USAID, the World Bank provides its assistance almost
exclusively to governments. As such, it encourages improvements
in financial management; economic planning; and investments
in roads, dams, power plants, and hospitals.
USAID, in contrast, disburses most of its aid through nongovernmental
organizations and other aid groups. This means that often
USAID is more active in providing humanitarian assistance
and working in fragile states.
The World Bank and USAID often work in the same countries
and, at times, on the same programs. In Ethiopia, for instance,
both organizations have helped the government develop a “safety
net” program that works on the ground with farmers to
combat famine. While the U.S. provides food aid, technical
assistance, and support for health and education, the World
Bank coordinates policy dialogue, budget support, and investment
in rural and social infrastructure.
The two organizations have also worked together on infrastructure
projects in Iraq, and are now working on rebuilding southern
Sudan.
The Bank’s main entity is the International Bank for
Reconstruction and Development (IBRD), which lends to the
more advanced developing countries out of contributions from
donor countries and money borrowed from capital markets.
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A boat glides across freshly reflooded marshlands in
late 2003, nearly 13 years after Saddam Hussein cut
off water, drained an estimated 90 percent of the marsh,
and drove nearly half a million people from their villages.
USAID, the World Bank, and other donors have helped
replenish the marshlands.
Ben Barber, USAID
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In 2005, IBRD total assets were $222 billion. Cumulative
lending over a half-century totals $371 billion. Each year,
it extends new loans of more than $10 billion. IBRD loans
come with analytical and advisory services to help countries
make sensible use of the capital.
Decisions on loans are made by the Bank’s executive
directors, who meet twice a week. The U.S. executive director
is instructed by the U.S. Department of the Treasury how to
vote on individual operations, and is sometimes instructed
not to vote for loans to a country over issues such as trafficking
in women, religious persecution, or failure to control terrorism.
With the world’s 81 poorest countries, the Bank works
through its second major division, the International Development
Association (IDA). Half of the association’s funds in
the next four years will be given as grants, rather than loans.
The United States contributes about one-quarter of IDA funds.
The cumulative value as of 2005 for all IDA funds was $161
billion.
IDA’s role has increased since the 1990s under recently
retired World Bank President James Wolfensohn, who veered
away from traditional large infrastructure projects and more
toward fighting poverty through education, healthcare, democracy,
and economic growth.
Newly elected President Paul Wolfowitz is following that
lead. “There has never been a more urgent need for results
in the fight against poverty,” he told the annual meeting
of the World Bank Group in September. “And there has
never been a stronger call for action from the global community.
“We know that sustained economic growth is essential
for development and reducing poverty…sustainable development
depends as much on leadership and accountability, on civil
society and women, on the private sector and on the rule of
law, as it does on labor or capital.”
Aside from IDA and IBRD, the World Bank Group consists of
three other affiliates: the International Finance Corporation,
the Multilateral Investment Guarantee Agency, and the International
Center for Settlement of Investment Disputes.
The International Center for Settlement of Investment Disputes
(ICSID)
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A farmer inspects a sorghum crop in Burkina Faso. USAID
and the World Bank—through the International Crops
Research Institute for the Semi-Arid Tropics (ICRISAT)—fund
crop-growing projects around the world.
ICRISAT |
The International Center for Settlement of Investment Disputes
(ICSID) was created in 1966 to help mediate disagreements
about investments between governments and private foreign
investors. The goal was not only to settle disagreements,
but to promote further international investment.
The body is not directly involved in conciliation or arbitration.
Instead, ICSID helps bring together the various parties for
talks and performs a number of administrative functions.
Today, the body is busier than ever, with record numbers
of cases. The cases include disputes involving hotel construction,
mining rights, oil exploration, and technical issues specific
to an industry or country. Synopses are available online.
The ICSID provides facilities for meetings—at its headquarters
in Washington, D.C., and throughout the world—and lays
down the rules countries and private enterprises must follow
during the proceedings.
ICSID also has the authority to arbitrate some non-institutional,
or ad hoc, proceedings. These are usually between governments
of member-countries and investors from other member-countries.
The North American Free Trade Agreement, or NAFTA, was one
recent example where ICSID stepped in to mediate disagreements.
On top of its primary responsibilities, ICSID publishes
a number of volumes, such as Investment Laws of the World
and Investment Treaties. It also provides advice to other
World Bank bodies on investment and arbitration laws.
The Multilateral Investment Guarantee Agency (MIGA)
The Multilateral Investment Guarantee Agency (MIGA) promotes
foreign direct investment in developing countries. That is
not always an easy task.
“Concerns about investment environments and perceptions
of political risk often inhibit foreign direct investment,
with the majority of flows going to just a handful of countries
and leaving the world’s poorest economies largely ignored,”
the organization says on its website.
To try to smooth the way for foreign investments in developing
countries, MIGA provides political risk insurance for foreign
companies hoping to do business in the Third World, technical
assistance to improve investment climate, and dispute mediation
services to forestall any roadblocks to future investments.
“We act as a potent deterrent against government actions
that may adversely affect investments,” MIGA says. “And
even if disputes do arise, our leverage with host governments
frequently enables us to resolve differences to the mutual
satisfaction of all parties.”
MIGA was formed in 1988, and has issued nearly 800 guarantees
worth more than $14.7 billion for projects in 91 developing
countries.
High-risk, low-income countries comprise 42 percent of its
portfolio. It has 166 member states.
MIGA focuses on four areas:
- Infrastructure development. Some estimates suggest
$230 billion is needed every year for new investments in
infrastructure that will serve rapidly growing urban centers
and underserved rural populations.
- Frontier markets. These are the “high-risk,
low-income” countries and markets from which businesses
tend to shy away.
- Conflict-affected countries. These have some of
the same characteristics that make frontier markets unattractive,
coupled with the uncertainties and dangers of war.
- South-South investments. These are investments
between developing countries. The number of such deals are
growing, but the countries themselves may not be sufficiently
developed and national credit agencies may lack the capacity
to offer risk insurance.
The International Finance Corporation (IFC)
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A workman adjusts irrigation on a patch of experimental
corn growing in a greenhouse at the international research
center for corn and wheat—CIMMYT—in Texcoco,
Mexico. CIMMYT is one of 15 research centers and part
of the Consultative Group on International Agriculture
Research, an umbrella research organization funded by
USAID and the World Bank.
Ben Barber, USAID |
The International Finance Corporation (IFC) was established
in 1956 to promote private-sector investment in developing
countries. It helps companies finance projects and find financing
in international markets. IFC also provides technical assistance
to both businesses and governments.
In September, at the release of its 2005 annual report,
the IFC announced its third consecutive year of growth.
“We are very proud of the past year’s accomplishment
and celebrate the strong performance of so many emerging markets
that made our results possible,” said Assaad J. Jabre,
IFC’s acting executive vice president.
IFC’s operating income was $1.95 billion in 2005, up
from $982 million in 2004. Its committed portfolio was $19.3
billion on June 30, an increase of 7.6 percent over the previous
fiscal year.
IFC also held and managed for participants $5.3 billion
in syndicated loans, according to the organization.
“Our ambition is to make a difference in developing
and transition countries by improving the business environment,
by building capacity in the private sector, and by working
with partners who share our commitment to improving corporate
governance and raising environmental and social standards,”
Jabre said. “To achieve real progress we must invest
in sustainable economic growth.”
In FY 05, IFC committed investments for its own account
totaling $5.37 billion, a 13 percent increase over FY 04.
Of these investments, $4.54 billion was for loans, $612 million
was in equity, and $220 million was for structured finance
and risk management products.
About 28 percent of these investments went to low-income
or high-risk countries, according to the corporation’s
annual report.
Expenditures for IFC’s technical assistance and advisory
activities, which are delivered through a network of donor-funded
facilities and programs, came to about $108 million in 2005.
IFC has 178 member countries.
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