The World Bank Research Paper

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Conceived in 1944 at a meeting of the Allied powers in Bretton Woods, New Hampshire, the World Bank was created as a counterpart to the International Monetary Fund (IMF). Located side-by-side in Washington, D.C., the World Bank was designed to provide development assistance to countries in need, while the IMF was set up to serve as a lender-of-last-resort for countries struggling with balance-of-payment crises. Together, these twin entities have come to symbolize the kinds of post—World War II multilateralism and institution-building known as the Bretton Woods system. Both the World Bank and the IMF are owned and governed by 184 member countries, which make up the client base of each organization.

Formally, the World Bank is run by a board of governors and a board of directors, which jointly represent the views of all the member countries. The founders of the World Bank vested predominant ownership and control in the wealthier countries, as embodied in a weighted voting system that gives more power to those countries that contribute the most financial resources or quota, which is the amount each member pays according to a percentage of its gross national product (GNP). The World Bank is thus clearly divided between those countries that primarily give funds and those that mostly receive them. The formula used to determine country quotas is based on measurements of national income, foreign reserves, and international trade. Some technical changes in the formula have occurred through the years, while the most important revisions have come about as a result of fierce political negotiations.

Although the World Bank’s early work centered on the reconstruction of war-torn Europe, over the years it has primarily focused on the welfare of developing countries. At the same time, it has evolved into a far more complex institution. The World Bank has acquired five main affiliates, which now operate under the banner of the World Bank Group: the International Bank for Reconstruction and Development (IBRD); the International Development Association (IDA); the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and, the International Centre for Settlement of Investment Disputes (ICSID).

The IBRD focuses on middle-income and creditworthy developing countries, while the IDA targets poverty reduction in the poorest countries in the world economy. For example, the IDA provides interest-free loans and some grants for programs aimed at enabling poor countries to meet the United Nations’ Millennium Development Goals (MDGs), which were adopted in 2000 in an effort to halve world poverty rates by the year 2015. The role of the IFC is to promote sustainable private-sector investment in developing countries, and MIGA’s mission is to promote foreign direct investment (FDI) in developing countries. Finally, ICSID provides facilities for the arbitration of disputes between member countries and investors who qualify as nationals of other member countries. Recourse to ICSID conciliation and arbitration is entirely voluntary.

A common depiction of the World Bank nowadays is that of an international organization that is overstretched and undernourished, and one that faces several conflicting challenges. These include the general decline in resources available for official development assistance, a rapidly expanding development agenda, and increasing competition from private lenders and other bilateral and nongovernmental aid agencies. The World Bank has also been subject to mounting criticism from nonstate actors, who are demanding the adoption of new policies that would greatly increase transparency, accountability, and self-evaluation. Much of this has to do with the marked changes that have occurred in the international political economy since the World Bank’s inception more than sixty years ago.

From Project Lending To Structural Adjustment

Up until the late 1960s, the World Bank was largely committed to project lending, meaning that its loans were used for investment in physical assets and infrastructure. Such projects were concrete, finite, and usually tied to a given sector, such as hydroelectric energy or railroad transport. This all changed when Robert McNamara assumed the World Bank presidency in 1968. McNamara placed poverty alleviation and the development process itself at the top of his agenda. He shifted the World Bank’s mission toward country programming and a region-by-region deployment of project work that was no longer tied to just one sector. It was also during this period that conditional-ity for World Bank lending was tied more closely to a given country’s effort to promote the satisfaction of basic needs among the poorest segment of the population. One of McNamara’s strongest legacies was a massive allocation of in-house financial support for development research.

By 1973, when he began his second term as president, McNamara had linked growth with poverty reduction and strongly supported a shift from project lending to loans that would enable the developing countries to undertake structural adjustment programs geared toward policy reform and export promotion. These structural adjustment loans (SALs) would offer incentives for reform progress, as well as disincentives for reformers that lagged. The coinciding of the SALs and the 1973 oil price shocks would delay their widespread implementation until the 1980s, however, because the oil shocks generated excess international liquidity and low-cost private lending alternatives for many developing countries. As a result of these alternative lending sources, the World Bank’s client countries were less receptive to the policy coaching and reform guidance that were a condition for disbursement of the SALs. McNamara served as president of the World Bank until 1981.

The advent of the 1982 debt crisis revealed the excesses of the previous decade’s borrowing spree, as well as the inability of the World Bank and the IMF to motivate debt-burdened developing countries to sustain the kinds of macroeconomic policy reforms that had been built into the SALs. With the end of the cold war in the late 1980s, and after a full decade lost to policy mismanagement and false starts on the reform front in Africa and Latin America, SALs became most important for these regions. The World Bank embraced a new wave of neoclassical economic orthodoxy and openly promoted the virtues of liberalization.

The 1989 Baker Plan for developing-country debt restructuring signaled another shift in which the World Bank would play a major role. The idea, which met with debatable success, was to use multilateral lending to encourage private international banks to offer fresh loans to those highly indebted middle-income countries that were prepared to undertake further policy reforms. This period also saw the expansion of the World Bank’s mandate to include new issue areas like environmental protection, women and development, private-sector reform, and deeper involvement in social service delivery. In 1990 the World Bank’s annual World Development Report focused on poverty reduction, reviving earlier commitments that had surfaced during the McNamara era.

The Glass Is Still Half Empty

On December 31, 1991, then World Bank president Lewis Preston inserted the following reminder into each staff member’s Operational Manual: “Sustainable poverty reduction is the Bank’s overarching objective.” This became a main benchmark by which the World Bank was judged as it approached its fiftieth anniversary in 1994. For many critics, the World Bank’s shortcomings on this count were more notable than its achievements. “Fifty years is enough” became one of the retorting slogans from within a tightly knit community of global nongovernmental organizations (NGOs) that had been monitoring the World Bank’s track record. Even a former career economist at the World Bank, William Easterly, would go on to publish a highly critical best-selling book, The Elusive Quest for Growth (2002), a patently blunt analysis of the weak link between World Bank lending and positive developmental outcomes in client countries over the lifetime of the bank.

Apart from its lackluster record on sustainable poverty reduction, the World Bank’s branching out into other issue areas has run up against measurement and financing constraints. On the question of measurement, with each passing decade it has become more difficult to firmly assess and hold the institution accountable for the multiplicity of goals that have been pursued. The need to prioritize policy preferences and establish reliable evaluation indicators is one part of this problem; the other lies on the side on internal leadership. Rather than directly tackle those institutional weaknesses that have long been identified as impeding the World Bank’s performance, Paul Wolfowitz, who was appointed World Bank president in 2005, has narrowly focused on the elimination of corruption within client borrowers. In the meantime, although the 2015 deadline for reaching the Millennium Development Goals is rapidly approaching, the World Bank risks lagging further behind in its ability to play a key poverty reduction role.

On the question of financing, the World Bank faces two main constraints. First, there is a growing divergence between voting rights and the contributions made to IBRD equity by shareholders, as the share of retained earnings has risen while the share of paid-in capital has declined over the years. In short, the major shareholders have used their control rights to allocate portions of IBRD net income in ways that serve their interests over those of the institution as a whole. Second, the continuation of a stagnating loan portfolio in nominal terms, and a declining one in inflation-adjusted terms, is likely to curtail the bank’s net income from lending operations and make its profitability increasingly dependent on financial trading. Part of this is a generational shift, whereby the dependence of middle-income countries on official assistance has greatly declined, leaving the IBRD with a dwindling client base. An obvious but highly controversial solution would be to shift these funds to the IDA, where the borrowing demands from poorer country members are still on the rise. While the IBRD is still the most important institution of the World Bank Group, and while it is obviously reluctant to cede financial power, the IDA is gaining ground in a de facto manner.

In sum, since the 1980s, the work of the World Bank has mainly affected the poorer developing countries, yet the structure of representation on the board of directors has changed little since it was established at Bretton Woods in 1944. This imbalance raises crucial stakeholder issues, for the World Bank’s own research suggests that policy reform commitments will be upheld when governments actively participate in the identification and formulation of these very programs. On these grounds alone, the argument favoring internal reform of the World Bank’s governance structure is a compelling one.

Development Agency Versus Development Bank

For all its shortcomings, it is important to note that the World Bank has successfully changed its profile from that of a development bank proper to the world’s leading development agency. This partly reflects the long-term payoff from the financing of development research. Indeed, the World Bank has become one of the most important sources of knowledge for development and poverty reduction. The influence of the policy research generated in-house by the World Bank is overwhelming, both in terms of quality and quantity. Lending and operations, loan proposals, and assessment of the outcomes are still an important part of the bank’s daily workload, but it also undertakes research in over 150 countries and brings together the world’s largest concentration of development specialists.

A key criticism nowadays is that the legitimacy and credibility of the World Bank’s expertise is drawn through a circular process between the knowledge it produces and the audiences that legitimize this knowledge. The World Bank Institute (WBI), created in 1955 to train policymakers in development economics, has become increasingly influential. In 1999 the WBI created the Global Development Network (GDN) with the aim of building research capacities in the Global South. But the GDN’s doubters point to its rationalist tendency, which portrays research as scientific and independent from its social context. This is captured by the GDN slogan: “Better Research, Better Policy, Better World.” However, neither its ideas nor its research are neutral. Partnerships with the South have enabled the World Bank to pair up with institutions that share its core ideas while arguably excluding other viewpoints. At a time when critics are calling for a more open and inclusive debate about development strategy, the World Bank seems increasingly resistant to an open exchange of this nature.


  1. Birdsall, Nancy, ed. 2006. What Next for the World Bank? Washington, DC: Center for Global Development.
  2. Easterly, William. 2002. The Elusive Quest for Growth: Economists’ Adventure and Misadventures in the Tropics. Cambridge, MA: MIT Press.
  3. Kapur, Devesh, John P. Lewis, and Richard Webb. 1997. The World Bank: Its First Half Century. Washington, DC: Brookings Institution Press.
  4. Pincus, Jonathan R., and Jeffrey A. Winters, eds. 2002. Reinventing the World Bank. Ithaca, NY: Cornell University Press.
  5. Woods, Ngaire. 2006. The Globalizers: The IMF, and the World Bank, and Their Borrowers. Ithaca, NY: Cornell University Press.

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