By Jonny Lupsha, Wondrium Staff Writer
The World Bank provides assistance to developing countries worldwide. This assistance can come in the form of technical or financial aid. What is its organizational structure like?
The World Bank is an international organization that seeks to reduce global poverty by lending and granting money to countries that need it. The World Bank is funded by its wealthiest member countries. The largest shareholders are the United States, Japan, Germany, the United Kingdom, and France. An annual meeting of World Bank and International Monetary Fund (IMF) governors—often country ministers—is held to decide where the money will go.
As its largest shareholder, the United States is seeking to overhaul the World Bank. The United States recently appointed Ajay Banga, the former chief executive officer for MasterCard, to serve as its president. What will Banga oversee? In his video series America and the New Global Economy, Professor Timothy Taylor, Managing Editor of Journal of Economic Perspectives, breaks down the structure of the World Bank.
What Are the Organizations of the World Bank?
The World Bank and the IMF work together regularly and it’s possible to get them mixed up. So what’s the difference?
“The World Bank is about economic development for Africa, South Asia, and many other low-income parts of the world,” Professor Taylor said. “It’s about world hunger, world poverty, and the power of foreign development aid. The IMF is about international capital flows and the crises that can occur because of them.”
The World Bank has developed five different organizations within itself that make up what’s called the World Bank Group. According to the World Bank’s official website, the International Bank for Reconstruction and Development (IBRD) lends money to both low- and middle-income countries, while the International Development Association (IDA) focuses on lending to low-income countries.
The International Finance Corporation lends money to the private sector, the Multilateral Investment Guarantee Agency encourages private companies to invest in foreign countries, and the International Centre for Settlement of Investment Disputes works out differences between foreign countries and private investors.
What’s the Difference between the IBRD and the IDA?
“What the International Bank for Reconstruction and Development does is it sells bonds on world markets, and that provides the funds to make these loans,” Professor Taylor said. “This money is used to make loans, sometimes to guarantee loans. That is, the country can borrow at a lower rate if the World Bank guarantees the loan will be paid back, and there’s advice that comes with these loans.”
The IBRD was founded in 1946. The IDA was founded in 1960 and focuses on the world’s poorest 80 or so economies. The loans given by the IDA are very different from what most of us know about bank loans. No interest is charged on these loans, and that’s not the only difference.
“The repayments are typically stretched out over 35 to 40 years, and sometimes there’s a 10-year grace period added,” Professor Taylor said. “If there’s too much debt, they sometimes give the country a grant to pay off the debt; so, they are only loans in the most technical sense.”
According to Professor Taylor, the IDA gave out about $10 billion a year throughout the 2000s, half of which is sent to sub-Saharan Africa. Most of the money is contributed by donor nations, while some comes from repayments of loans given.
America and the New Global Economy is now available to stream on Wondrium.