FAQs
The World Bank and its sister institution, the International Monetary Fund, are the two most powerful financial institutions in the world.
The World Bank was created by governments to help finance the reconstruction of Europe after World War II. Since then, the Bank has become the largest public “development” agency in the world, offering grants, loans or guarantee credits to over 100 developing countries. The World Bank’s mission is “is to fight poverty and improve the living standards of people in the developing world” and its lending has a direct impact on the lives of millions of people around the world. The World Bank lends, on average, $US 15 to $20 billion per year.
The Bank is paradoxically, both a “development” institution providing grants to poor countries and a financial institution, which has made a profit from loans to those same countries every year since 1947. In 2002, World Bank (IBRD, see below) profits were US$2.8 billion.
Technically, the World Bank is a public institution, owned by the 184 countries, including Canada, that are its “members”. Click here for a list of World Bank member countries.
Citizens of member countries, however, feel little ownership of the World Bank. It is a highly secretive and unaccountable institution with limited public access, transparency and accountability, particularly to the millions who are directly influenced by its actions.
3. Who makes decisions at the World Bank?
While all of its members “own” the World Bank, only a few control it. Unlike the United Nations, which is governed on the principle of “one country, one vote”, the World Bank relies on a “one dollar, one vote” system. The Bank is, therefore, effectively controlled by a few donor countries, led by its largest donor, the US. The US has effective veto power over any decision made by the Bank’s Board of Executive Directors because votes require 85% support and the US holds 16% of the voting share. As a result of this form of inequity, Bank policy is often a reflection of US policy.
Canada, a donor country, has roughly a three percent share in the World Bank. Unlike most developed countries, Canada shares its seat at the governing Board with a constituency of twelve other countries: Ireland, Antigua & Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts & Nevis, St. Lucia, and St. Vincent & the Grenadines.
The Executive Director for Canada is Marcel Massé, whose job it is to represent the interests of all countries in the constituency. The Canadian Executive Director is appointed by the Finance Minister and is accountable to Parliament.
Most of the Banks operational decisions, which affect the lives of millions daily, are made by over 10,000 World Bank staff, most of whom are based at its head office in Washington, DC, USA.
4. What are the agencies of the World Bank and what do they do?
- International Bank for Reconstruction and Development (IBRD)
Higher-income developing countries receive loans from the IBRD. Countries that borrow from the IBRD have more time to repay than if they borrowed from a commercial bank—15 to 20 years with a three-to-five-year grace period before the repayment of principal begins. Developing country governments borrow money for specific Bank-approved programs, Structural Adjustment below) specific projects and to pay back old debt.
In fiscal 2002 IBRD provided loans totaling US$11.5 billion in support of 96 projects in 40 countries.
- International Development Association (IDA)
IDA is the world’s largest source of funding in the form of grants or low/no interest loans to the world’s poorest countries. Forty industrialized countries provide the money for this funding by making contributions every four years. The fund was replenished most recently in 2002, with nearly US$9 billion from donors and another US$6.6 billion from the Bank’s resources.
In fiscal 2002 IDA provided US$8.1 billion in financing for 133 projects in 62 low-income countries.
- International Finance Corporation (IFC)
The IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. IFC finances specific projects, mobilizes finance to help private companies raise capital and provides advice and technical assistance to businesses and governments.
In 2003, the IFC approved 186 projects totaling US$5.4 billion, primarily in the financial, transportation and fossil fuels sectors in Latin America and Central Asia.
- Multilateral Investment Guarantee Agency (MIGA)
MIGA promotes private sector foreign direct investment into developing countries through the provision of guarantees. These guarantees are a form of insurance designed to protect investors against risks including: expropriation, war and civil disturbance, and breach of contract.
- International Centre for Settlement of Investment Disputes (ICSID)
ICSID facilitates the settlement of investment disputes between governments and foreign investors.
5. How much has Canada contributed to the World Bank?
As of June 2003, Canada has – cumulatively over all the years of its membership – subscribed or contributed more than US$10.8 billion to the World Bank.
The breakdown by World Bank agency is as follows:
IBRD – US$ 5.4 billion
IFC – US$ 81.3 million
MIGA - US$ 56.5 million
IDA – US$ 5.3 billion
6. What kind of loans does the World Bank make?
The World Bank makes two kinds of loans:
- Project Loans - for specific deliverables such roads, power plants, schools and hospitals
- Structural Adjustment Loans - loans to restructure a country’s economic system. In 2001, structural adjustment lending represented 38% of the World Bank’s IBRD lending portfolio.
7. How is the Bank doing at “alleviating poverty”?
Poorly. A four-year comprehensive assessment study completed in 2002 by the World Bank and over a thousand civil society organizations in seven countries concluded that the Bank’s policies and practices (see Structural Adjustment below) had done far more harm than good. Increased inequality, higher unemployment rates, more expensive healthcare and education as well as the deterioration of the environment were the results of the Bank’s blind adherence to the neo-liberal economic model.
Earlier studies by the Bank’s internal evaluations department determined that a third of all Bank loans did not even meet the Bank’s own lending criteria. A “culture of approval” was determined to be the primary cause of the failures. Bank officials felt pressure from donors and their corporations to push through new loans even when presented with overwhelming evidence that the project in question was ill advised.
8. Why campaign on the World Bank?
People around the world have been opposing the policies and practices of the World Bank for decades. Here are some of the reasons why:
- The World Bank has imposed a neo-liberal economic model of forced privatization, user fees, fiscal austerity, deregulation and liberalization (collectively known as “structural adjustment”). This has undermined job security, food security, worker’s rights, public health, primary education, environmental protection and people’s livelihoods for the past sixty years, with particularly harmful effects on women.
- The World Bank’s adherence to narrowly defined export-led growth model has widened the gap between the rich and poor globally and within developing countries.
- By keeping the governments of less developed countries dependent on new infusions of capital from rich countries, the World Bank has made governments more accountable to Bank managers than to their own people, undermining both democracy and meaningful development.
- The World Bank refuses to cancel 100% of the staggering debt of impoverished countries, despite the illegitimate nature of the debt and the inability of countries’ to both pay debt and provide for the most basic human rights to food, shelter, health care and education.
- World Bank lending for oil wells, gas pipelines, mines, and large dams has displaced millions of people and resulted in human rights abuses, impoverishment of local communities and damaged the environment all over the world.
- The World Bank remains inaccessible, unaccountable and undemocratic both to the majority of people in the developing countries where it operates, and to the taxpayers of the Canada who contribute to it.
9. What are “structural adjustment” policies and what are their impacts on developing countries?
“Structural adjustment” is the name given to a set of neo-liberal economic policies imposed on developing countries by the World Bank and its sister institution, the IMF. The World Bank, dominated by classical economists, asserts that these policies will stabilize economies and encourage development, though the evidence is strongly to the contrary.
The key components of SAPs include requirements to:
- Privatize public and natural assets;
- Liberalize trade and finance;
- Orient production to exports;
- Substantially reduce public spending (social services, subsidies) and the role of government in regulating in the public interest.
SAPs as they are ironically known, have deepened poverty, undermined food security, public health and self-reliance and led to unsustainable resource exploitation. Since the 1980s, SAPs have helped create a net outflow of wealth from the developing world, which has paid out five times as much capital to the industrialized (donor) countries as it has received from them.
Click here for more information on SAPs and their impacts
10. Why do developing countries agree to these harsh economic measures?
They have no choice. Faced with a crushing debt service burden and desperate for either debt relief or new resources to continue to operate, developing country governments have virtually no bargaining power. By making new loans or debt relief conditional on the adoption of SAPs, the World Bank can effectively impose “free market” economic policies on reluctant developing countries.
11. How did these countries get so far in debt?
In the 1970s, irresponsible lending by commercial banks coupled with reckless borrowing by developing country governments, most of which were not popularly elected and no longer hold power, set the stage for the current situation.
In the early 1980s, a debt crisis arose as a result of a combination of several factors. A global collapse in the prices of commodities that developing countries export (e.g., coffee, cocoa) resulted in low revenues. Rising oil prices and skyrocketing interest rates forced these countries into a position where they were unable to make debt payments. They began taking new loans to payback old loans, creating a “debt treadmill” that continues to this day.
Developing countries' external debts have ballooned from US$580 billion in the 1980s to US$2.4 trillion at the end of 2002. This four-fold increase in debt occurred despite the fact that these countries have made some US$4.8 trillion in debt payments over the last 22 years. In 2002 alone, the net outflow of debt payments in excess of new loans amounted to US$192 billion, an unconscionable transfer of wealth from the South to the North.
For more on the debt, click here
12. Who, then, benefits from World Bank projects and policies?
World Bank projects generate over 40,000 contracts annually for goods and consulting services provided by largely by donor countries, including Canada. According to Finance Canada, in fiscal year 2002, World Bank disbursements from country-specific project and program loan accounts to Canadian firms for procurement of goods and services totaled US$130 million.
As a result of this donor self-interest, the Bank tends to finance bigger, more expensive projects using donor contractors and donor technology at the expense of smaller-scale, locally appropriate alternatives. The World Bank has largely focused on transferring technologies from donor to recipient, purchasing a quick technological or managerial fix rather than addressing the underlying causes of poverty.
