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World Bank is an organization that was established after the World War II at New Hampshire during the Bretton wood agreement July 1944, the bank was basically started to help the developing counties of Europe but afterwards with the passage of time it expands its activities to the other developing nations of the world in order to rehabilitate and reconstruct,. The World Bank formally began operations on 26th June 1946. The initial authorized capital of the bank was $12 million. And France in 1947 was the first to get the loan of $ 250 million for the post war construction.
In early years the bank focused on the reconstruction of the countries damaged in result of humanitarian emergencies, natural disasters, or post conflict rehabilitations and it lasts till 1967. But now days the bank has enhanced its priorities and sharpened its focus towards the poverty reduction. World Bank staff was once consisted of engineers and financial analysts only, but today social scientists, public policy experts and economists are also included in the staff of World Bank.
The World Bank is the largest public development institution in the world, lending around US$ 25 billion a year to developing countries. The main purposes of the Bank "to assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes" and "to promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment ... thereby assisting in raising the productivity, the standard of living and conditions of labor in their territories".
The Bank aims to achieve these goals through the provision of long-term loans to governments for the financing of development projects and economic reform. Voting power on the Bank's board is based on the members' capital subscriptions which mean the members with the greatest financial contributions have the greatest say in the Bank's decision-making process.
Interest rates on World Bank loans are revised every six months and typically, the Bank charges borrowers a rate of interest 0.5 per cent above its own cost of borrowing on the international market, the proceeds going towards paying the Bank's operating costs and to add to reserves. Loans were originally supposed to be given only to "specific projects" usually infrastructural projects, such as the construction of highways, dams, and telecommunications facilities, and social welfare projects, such as those in the health and education sector. In 1980, the Bank introduced adjustment lending under its structural adjustment programmed (SAP) to provide financing to countries experiencing balance of payments problems while stabilization measures took effect. These loans are provided to countries for social, structural reforms, for example for the development of national financial and judicial institutions. The World Bank attaches conditions to its loans with the stated aims of ensuring the country's economy is structured towards loan repayment
International Bank for Reconstruction and Development (IBRD)
International Development Association (IDA)
International Finance Corporation (IFC)
International Investment Guarantee Agency (MIGA)
Multilateral centre for settlement and Investment disputes (ICSID)
History of World Bank:
World Bank is an institution which came into being as a result of Bretton wood agreement held in July 1944; during the early years of its commencement the World Bank lent money in a careful manner, through proper screening of loan applicants. Major functions fulfilled by World Bank in those days were reconstruction and development
John mcCloy was elected as the very first president of World Bank, and France was the first country to receive the loan from the World Bank where as the two other applicants at the same time were rejected, due to the communist element in French cabinet they were facing difficulty in the approval of loan, as soon as this element was removed it took a couple of hours for the application of loan to be approved, the loan was awarded to France at strict conditions. The end use of the fund was monitored by the staff of World Bank to ensure the repayment of the debt,
Initially the world bank serves only to europeon countries, but when the aid received by the developing europeon countries started competing directly to the loans of the world bank, the institution in collaboration to Marshall's plan of 1947 sharpened there focus towards the non-europeon third world countries.
Poverty alleviation and access to basic needs were the two main focuses of the bank during the late 60`s. but due to this a consequence rise that the debts on developing countries started increasing rapidly according to an estimate 20% annual increase was noted in the debts of third world countries In this era the frequency of borrower nations was intensely increased as the target market was shifted from infrastructure to social services.
In 1968 when McCloy was replaced by the Robert McNamara, the former President of ford motor and United States secretary of defense, the technocratic management style was implemented in the bank. In order to improve the literacy rate and to bring reforms in the agriculture sector McNamara altered the bank's policy towards the building of schools and hospitals a new system of gathering information was launched so that the applications of loan could be processed quickly, when the treasure Eugene Rothberg was asked to find some new sources outside the northern banks it was when the global strategy implemented to gather the capital from global bond market
In 1980 Robert McNamara was replaced by A.W.Clausen and he was appointed by the U.S president and replaced most of the staff members working in the era of McNamara and instituted new ideological focus in the bank. In 1982 Anne Kruger was appointed at the World Bank and she shifted a policy of the bank. Kruger was famous of her criticism of development funding as wall as third world governments as rent seeking states .lending for the purposes of services was done from 1980-1989 to third world. In the late 1980's UNICEF reported that World Bank was responsible fro the "reduced health, nutritional and educational levels for the millions of children in Asia, Latin America and Africa. From 1989 to present, World Bank policy has shifted greatly, largely in response to criticism from a plurality of groups. Environmental groups and NGOs are often now integrated into the lending practices of the bank in order to mitigate the negative results of the previous era that prompted such harsh criticism. Bank projects now explicitly embrace a "green" focus
.Activities of The World Bank:
Millennium Development Goals:
The World Bank's current focus is on the achievement of the millennium development goal (MDGs), lending primarily to "middle-income countries" at interest rates which reflect a small mark-up over its own (AAA-rated) borrowings from capital markets; while the IDA provides low or no interest loans and grants to low income countries with little or no access to international credit markets. The IBRD is a market-based nonprofit organization using its high credit rating to make up for the relatively low interest rate on its loans, while the IDA is funded primarily by periodic "replenishments" (grants) voted to the institution by its more affluent member countries.
Five key factors:
The Bank's mission is to aid developing countries and their inhabitants to achieve development and the reduction of poverty, including achievement of the MDGs, by helping countries develop an environment for investment, jobs and sustainable growth, thus promoting economic growth through investment and enabling the poor to share the fruits of economic growth. The World Bank sees the five key factors necessary for economic growth and the creation of an enabling business environment as:
Build capacity: Strengthening governments and educating government officials.
Infrastructure creation: implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honoring of contracts.
Development of Financial Systems: the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures.
Combating corruption: Support for countries' efforts at eradicating corruption.
Research, Consultancy and Training: the World Bank provides platform for research on development issues, consultancy and conduct training programs (web based, on line, video conferencing and class room based) open for those who are interested from academia, students, government and non-governmental organization (NGO) officers etc.
The Bank obtains funding for its operations primarily through the IBRD's sale of AAA-rated bonds in the world's financial markets. The IBRD's income is generated from its lending activities, with its borrowings leveraging its own paid-in capital, plus the investment of its "float". The IDA obtains the majority of its funds from forty donor countries who replenish the bank's funds every three years, and from loan repayments, which then become available for re-lending.
The Bank offers two basic types of loans: investment loans and development policy loans. The former are made for the support of economic and social development projects, whereas the latter provide quick disbursing finance to support countries' policy and institutional reforms. While the IBRD provides loans with a relatively low interest rate, the IDA's "credits" are interest free. The project proposals of borrowers are evaluated for their economical, financial, social and environmental aspects prior to their approval.
The World Bank also distributes grants for the facilitation of development projects through the encouragement of innovation, cooperation between organizations and the participation of local stakeholders in projects. IDA grants are predominantly used for:
Debt burden relief in the most indebted and poverty-stricken countries
Improvement of sanitation and water supply
Support of vaccination and immunization programs for the reduction of communicable diseases such as malaria
Combating the HIV/AIDS pandemic
Support of civil society organizations
Creating initiatives for the reduction of greenhouse gases
The Bank not only provides financial support to its member states, but also analytical and advisory services to facilitate the implementation of the lasting economic and social improvements that are needed in many under-developed countries, as well as educating members with the knowledge necessary to resolve their development problems while promoting.
Areas of core operations:
Agriculture and Rural Development
Conflict and Development
Development Operations and Activities
Health, Nutrition and Population
Information and Communication Technologies
Information, Computing and Telecommunications
International Economics and Trade
Labor and Social Protections, Law and Justice
Macroeconomic and Economic Growth
Public Sector Governance
Water Supply and Sanitation
Role of World Bank Within Pakistan:
The Federal and Provincial Governments have been implementing various reform programs aimed at encouraging growth, investment, and employment generation. Reforms at the provincial level are specifically aimed at improving delivery of social services like education, health, clean drinking water, and sanitation. In June 2007, the World Bank approved a $350 million credit to support ongoing implementation of the Government's Poverty Reduction Strategy. At the provincial level, the Bank approved operations worth $430 million for Punjab, Sindh and the North West Frontier Province to help improve irrigation, education and human development indicators through improvements in public finance, governance and financial regulatory frameworks.
Working with Pakistan Poverty Alleviation Fund:
The World Bank funded Pakistan Poverty Alleviation Fund Project (PPAF) is designed to reduce poverty and empower the rural and urban poor in Pakistan through the provision of resources and services to the poor, especially women. This is being achieved through an integrated approach that includes building institutions of the poor and then providing them with micro-credit loans; grants for small scale infrastructure projects; training and skill development and social sector interventions. The program is impacting over 10 million people and has mobilized over 66,000 community organizations (COs) in 27,000 localities across 111 districts in the country. More than 13,000 small scale village-based projects have been identified, constructed and maintained by communities' right across the country benefiting nearly 6 million people. PPAF has issued 1.5 million micro-credit loans, (average loan-size US$ 150), benefiting nearly 9 million people. Over the last 7 years PPAF has driven the microfinance sector growth from 60,000 borrowers to more than 1.25 million active borrowers in the sector. (www.worldBank.org)
Helping the victims of the Earthquake:
The October 2005 earthquake in Pakistan destroyed or damaged around 575,000 rural houses, leaving more than 73,000 dead, and rendering over 3 million people without shelter in North West Frontier Province (NWFP) and Azad Jammu and Kashmir (AJ&K). In response, the government created the Earthquake Relief and Reconstruction Authority (ERRA) and launched an ambitious $1.5 billion owner driven rebuilding program, largely suited to the mainly rural affected population. Under ERRA's Rural Housing and Reconstruction Program (RHRP), partially funded by the World Bank, homeowners are given around US$3,000 in installments to build quake-resistant homes with routine visits by inspection teams to ensure compliance to agreed seismic-resistant standards. Owner driven reconstruction and rehabilitation of an estimated 463,000 houses have begun and is at various stages of completion. The RHRP has disbursed over $1.1 billion to program beneficiaries or 75 percent of the overall $1.5 billion estimated cost. (www.worldBank.org)
Working For The Improved education outcomes:
The World Bank is providing assistance to the Government of Pakistan in education reforms, at both the national and the provincial level. This support is provided through development policy operations with a strong focus on primary and secondary education. These programs target increasing participation of girls and children from poorer household through interventions such as student stipends and conditional grant systems and by working in partnership with the private sector to provide access to low cost quality education. The World Bank is also assisting the government in improving the quality and relevance of its higher education and technical and vocational training system.
Focusing on un-served low-income communities:
In NWFP and AJK*, Bank projects are supporting delivery of cost effective and sustainable community development schemes, and basic infrastructure and services, using participatory community based approaches. To achieve this, the role and capabilities of local governments at the district and lower levels have been strengthened to extend technical, financial, and management support to Community Based Organizations (CBOs). CBO are being mobilized and their capacity is being enhanced to increase their participation in development activities. Governance, transparency, and accountability are being more effective through improvements in operational, monitoring and evaluation, and financial and budgetary procedures for project implementation. In AJK, the project has already reached a population of 893,000 against the original target of 830,000, through 320 CBOs. Out of the 54 Tehsil Municipal Authorities (TMA) in NWFP, 50 are now participating in the Project.
Relying on local expertise
Around 90 percent of World Bank's staff is in Islamabad office, plus additional staff in their Washington office is Pakistani. While a large part of World Bank's value is its global experience and expertise, local knowledge is indispensable to effective development. World Bank also works closely with the Pakistan government, civil society and communities in designing the support for the country. Most importantly overall assistance to the country is specifically designed to support its own development goals. World Bank has periodic client satisfaction surveys through which it assess how their services are perceived by a cross section of society including the government, private sector, civil society, academia, and media etc. These polls are carried out globally by reputed international firms.
Helping Pakistan fight Against Polio:
As part of Bank's efforts to help eradicate polio globally, The World Bank approved two projects $42.71 million in 2003 and $ 74.27 million in 2006 for Pakistan to purchase the oral polio vaccine. The money is part of an innovative financing partnership (IDA Buy-down) between the World Bank, the Bill & Melinda Gates Foundation, Rotary International, and the United Nations Foundation. These organizations have formed the Investment Partnership for Polio, an initiative to help eradicate polio worldwide. The loan to Pakistan will help the country's Polio Eradication Initiative which aims to make Pakistan a Polio free country. Since 1997 the number of polio cases has decreased from 1147 to 31 in 2007. The first project has been successfully completed. Based on an independent third party assessment, the first credit (US$ 42 million) has been converted into a grant and written off for the Government of Pakistan
Strategies of World Bank:
The World Bank does not work alone, but in cooperation with various groups including, communities, and civil society, government, and donor agencies. The joint effort of these groups is required to significantly reduce poverty. The World Bank provides technical expertise and funding in areas such as health, education, public administration, environmental protection, agriculture, and basic infrastructure.
Working with the government and civil society, the World Bank has developed an action plan known as the Pakistan Country Assistance Strategy which describes what kind of support and how much could be provided to the country beginning June, 2002 and covering a period two years . The strategy was designed to directly support the government's Poverty Reduction Strategy and focuses on three key areas:
strengthening economic stability and government effectiveness;
strengthening the investment climate;
Supporting pro-poor and pro-gender equity policies.
The World Bank also produces studies and reports based upon its own analysis of a given issue. Topics of research come from the Bank's Country Assistance Strategy. This research is intended to provide an unbiased perspective on a range of specific development challenge.
It also reviews of economic policies (Country Economic Memoranda), fiscal spending (Public Expenditure Review), environmental reviews (Environmental Action Plan), and other specific topics.
World Bank's assistance to Pakistan:
The World Bank's strategy is to support implementation of the government of Pakistan's own poverty reduction strategy paper (PRSP) and to provide financing and technical assistance for both economic and human development. The strategy is built around three main themes which correspond to the pillars of PRSP.
Sustaining high and board based growth and improving competitiveness:
Pakistan's PRSP emphasize the importance of sustaining rapid and broad based economic growth as the principle means of reducing poverty. While significant progress has been made in reducing state intervention in the economy and improving the regulatory framework for private business, firms continue to face significant policy, regulatory, and infrastructure constraints.
Improving government performance is a central element of Pakistan's poverty reduction strategy. The bank is assisting the government's efforts in this area by supporting reforms in public financial management and procurement, restructuring of tax administration bureaucracy; support for civil service reforms; and assistance to local and municipal government to improve their capacity for delivering public services.
Improving lives and protecting the vulnerable:
World bank also support Pakistan's effort to improve the life of its citizens through efforts to improve access to, and quality of public service in education, health, electricity, water supply and sanitation, with an emphasis on addressing gender disparities.
The bank will continue to support implementation of targeted activities in poor communities especially in rural drought prone areas. The bank will seek to build on the successful experience of the Pakistan poverty alleviation fund (PPAF) which has reached 6500 communities through micro credit and community driven physical infrastructure projects, and ongoing community infrastructure projects in AJK and NWFP.
Support of World bank on economic stability:
As Pakistan has experienced severe external and internal shocks in the past year and is confronting a very difficult macroeconomic situation, like the rise in international oil and food prices sharply inflated the country's import bill and the subsequent slowdown in the global economy dampened external demand for Pakistan's exports. It is also noted that "political turmoil and uncertainties affected investor confidence", leading to capital outflows.
The World Bank has designed the Poverty Reduction and Economic Support credit to support measures that promote macroeconomic stability. It also seeks to improve Pakistan's competitiveness by bolstering the financial sector and cutting barriers to business.
The government of Pakistan has taken important policy steps to stabilize the economy. These polices have succeeded in reducing external imbalances, rebuilding foreign exchange reserves, narrowing fiscal overruns and lowering inflation.
However, the sharp deterioration of the global economy poses significant risks to exports, remittances, and external financing. This underlines the importance of Pakistan regaining economic stability and protecting its poorest citizens during the process.
Criticism on World Bank:
The World Bank has long been criticized by a range of non-governmental organizations and academics, including its former Chief Economist Joseph Stiglitz, who is equally critical of the International Monetary Fund, the US Treasury Department, and US and other developed country trade negotiators. Critics argue that the so-called free market reform policies-which the Bank advocates in many cases-in practice are often harmful to economic development if implemented badly, too quickly ("shock therapy"), in the wrong sequence, or in very weak, uncompetitive economies.
Criticism of the World Bank encompasses a whole range of issues but they generally centre on concern about the approaches adopted by the World Bank in formulating their policies. This includes the social and economic impact these policies have on the population of countries who avail themselves of financial assistance from the institutions
Monopoly Of Powerful Countries:
One of the strongest criticisms of the World Bank has been the way in which it is governed. While the World Bank represents 184 countries, it is run by a small number of economically powerful countries. These countries choose the leadership and senior management of the World Bank and as such, their interests are dominant within the bank.
Dual Role of World Bank:
The World Bank has dual roles that are often contradictory: that of a political organization and that of an action-oriented organization. As a political organization, the World Bank must meet the demands of donor and borrowing governments, private capital markets as well as other international organizations. As an action-oriented organization, it must fulfill the role of a neutral organization specialized in delivering development aid, technical assistance, and loans. These dual roles are often inconsistent with one another. The World Bank's obligations to donor countries and private capital markets have caused it to adopt policies and programs that endorse liberal economic theory which dictates that poverty is best alleviated by the implementation of market-oriented policies.
Self Interests Of U.S:
Some critics of the World Bank believe that the institution was not started in order to reduce poverty but rather to support United States' business interests, and argue that the bank has actually increased poverty and been detrimental to the environment, public health, and cultural diversity Some critics also claim that the World Bank has consistently pushed a neoliberal agenda, imposing policies on developing countries which have been damaging, destructive and anti-developmental. Some intellectuals in developing countries have argued that the World Bank is deeply implicated in contemporary modes of donor and NGO driven imperialism and that its intellectual output functions to blame the poor for their condition.
Injustice While Choosing President:
It has also been suggested that the World Bank is an instrument for the promotion of US or Western interests in certain regions of the world. Consequently, seven South American nations have established the Bank of the South in order to minimize US influence in the region Criticisms of the structure of the World Bank refer to the fact that the President of the Bank is always a citizen of the United States, nominated by the President of the United States (though subject to the approval of the other member countries). There have been accusations that the decision-making structure is undemocratic, as the US effectively has a veto on some constitutional decisions with just over 16% of the shares in the bank; moreover, decisions can only be passed with votes from countries whose shares total more than 85% of the bank's shares.
Lack Of Transparency:
A further criticism concerns internal governance and the manner in which the World Bank is alleged to lack transparency to external publics. In 2008, a World Bank report which found that bio fuels had driven food prices up 75% was not published. Officials confided that they believed it was withheld from publication to avoid embarrassing the President of the United States, George W. Bush.
conditions Imposed by World Bank:
Critics of the World Bank are concerned about the conditionality imposed on borrower countries. The World Bank often attach loan conditionality based on what is termed the 'Washington Consensus', focusing on liberalization-of trade, investment and the financial sector-, deregulation and privatization of nationalized industries. Often the conditionality are attached without due regard for the borrower countries' individual circumstances and the prescriptive recommendations by the World Bank fail to resolve the economic problems within the countries.
With the World Bank, there are concerns about the types of development projects funded by the IBRD and the IDA. Many infrastructural projects financed by the World Bank Group have social and environmental implications for the populations in the affected areas and criticism has centered on the ethical issues of funding such projects. For example, World Bank-funded constructions of hydroelectric dams in various countries have resulted in the displacement of indigenous peoples of the area. There are also concerns that the World Bank working in partnership with the private sector may undermine the role of the state as the primary provider of essential goods and services, such as healthcare and education, resulting in the shortfall of such services in countries badly in need of them.
There are also criticisms against the World Bank governance structures which are dominated by industrialized countries. Decisions are made and policies implemented by leading industrialized countries because they represent the largest donors without much consultation with poor and developing countries.
The World Bank is the largest public development institution in the world, lending around US$ 25 billion a year to developing countries. The main purposes of the Bank is to assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes and to promote the long range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment.
The Bank aims to achieve these goals through the provision of long-term loans to governments for the financing of development projects and economic reform. The World Bank responded with structural adjustment loans which distributed aid to ailing countries while enforcing policy changes meant to mitigate domestic inflation and fiscal imbalance.
Some of these policies included encouraging production, investment and labor-intensive manufacturing, changing real exchange rates and altering the distribution of government resources
In spite of all these positive aspects, there are also some critics behind the screen which are not easy to omit. They are highly focused on developed countries and developing countries are ignored. They also impose a lot of conditions on credit and loans which are difficult for developing countries to fulfill.