New Internationalist

World Bank… The Facts

Issue 214

new internationalist
issue 214 - December 1990

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Diana Walker / CAMERA PRESS

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The World Bank maintains a low public profile and so manages to escape the scathing criticism levelled at its sister agency, the International Monetary Fund (IMF). However, as these facts show, the Bank has immense power - a power which is too often abused.

WAR-TIME ROOTS
The World Bank is one of a trio of institutions (along with the IMF and the General Agreement on Tariffs and Trade [GATT]) established at the end of World War Two by the major capitalist nations. The aim was to bring stability - and thus prosperity - to the global economy. The Bank has three divisions:

IBRD

- (lnternational Bank for Reconstruction and Development)

Founded: 1944

Purpose: Rebuild war-torn Europe and Japan; promote free flow of investment capital in member countries.

Main function: loans to Third World for long-term development projects.

Recent activities: 'structural adjustment' loans (short-term, non-project loans with stiff conditions) began in 1980, forcing poor countries to 'restructure' their economies to pay foreign creditors.

 

IDA

- (International Development Association)

Founded: 1960

Purpose: cheap loans to countries considered poor credit risks by IBRD.

Function: makes 90% of loans to poorest countries (annual per person income less than $480) with nominal interest rate of 0.75% to cover administrative costs; 10-year grace period repayments over 40 years.

Recent activities: 42 countries borrowed $4.93 billion in 1989 - 23% of total Bank lending 1

 

IFC

- (International Finance Corporation)

Founded: 1956

Purpose: backs loans for private-sector investment in Third World without government repayment guarantees; also helps mobilize investment from private sector.

Function: commercial, venture-capital outfit; runs separate from IBRO and IDA but shares same directors.

Recent activities: more than half its investments are in manufacturing, heavy industry, energy and mining.2

MONEY TALKS
· Each of 151 members contribute to the Bank's capital according to their clout in the global economy. The US is the largest contributor, with Japan fast closing ranks. Only 10% of this 'subscribed capital' is paid in; the rest (callable capital') acts as security. The Bank gets most of its money by selling bonds to international capital markets, governments and central banks.3

· The biggest shareholders get the most votes on the powerful Executive Board. Industrial nations (60% of the votes) have an effective majority, although loans recommended by the Bank President (by tradition and American: currently Barber Conable) and staff rarely come to a vote.

· One representative from each member country sits on the Bank's Board of Governors though day-to-day decisions are made by 22 Executive Directors at Bank headquarters in Washington. Fiver are appointed (Germany, France, Japan, UK and USA) and 17 are elected from country groupings (i.e. in 1989 Italy voted for Greece, Malta, Poland and Portugal).1

World Bank Voting Power (Selected Countries 1989)1

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PROFITS FROM THE POOR
·Bank loans are effectively guaranteed by member governments. Conservative lending (one dollar loaned for every dollar of subscribed capital) has led to a 'triple A' credit rating.

· The Bank is the biggest institutional borrower on international capital markets and has made a profit every year since 1947. From 1980 to 1989, net earnings increased by 86% - $588 million to $1.1 billion.3

· In 1989, 27% of the Bank's budget went to export agriculture and development finance companies. Only 11% went to education, health, nutrition, water supply and sewage.1

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SEEING GREEN
The Bank recently pledged to critically assess all of its projects that appear to threaten people or the environment - an estimated 25% of the total. But the Bank's past record in this area is not encouraging. 5

  • Nearly 1.5 million people have been forcibly displaced by Bank-supported hydro-electric dams and resettlement programmes since 1980. A 1990 summary of proposed Bank projects suggests another 440,000 people will soon be forced from their land.6
  • The Bank continues to fund energy mega-projects while ignoring alternatives. Less than 2% of Bank energy loans went for conservation or efficiency in 1988/89. 7
  • Under the Bank-supported Tropical Forest Action Plan, a proposed project in Cameroon will open 14,000 square kilometres of virgin forest. The goal: to make Cameroon Africa's largest exporter of tropical forest products by the year 2000.

SLIPPERY SLOPE
World Bank and IMF economic policies dovetailed in the 1980s in an effort to keep deeply-indebted Third World countries on the rails. As a result the net flow of capital from North to South actually began to reverse in 1983. The poor world is now aiding the rich. In 1989 the Third World paid out $52 billion more in debt service than it received in new investment and loans.

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SAP ZAP
When panic over Third World debt hit in the early 1980s, the Bank moved into the breach with 'structural adjustment' programmes (SAPs). To qualify, countries had to cut internal demand, slash public expenditure, boost exports and open border to foreign capital.

  • Like the IMF's famous 'seal of approval', SAPs are a signal to investors of a poor country's credit-worthiness. SAPs have grown steadily since 1980. In 1989, $6.4 billion - nearly 30% of total Bank lending - fell into this category.1
  • SAPs allow countries to pay interest on their debts but they do not help the poor. In sub-Saharan Africa, where more than 30 nations are following Bank adjustment policies, average incomes have fallen by 20% over the last decade. Spending on health care has been cut by half and on education by a quarter.4
  • Mexico's SAP increased unemployment from 1 million in 1982 to more than 4.5 million in 1987. Meanwhile purchasing power of the minimum wage fell by half.

THE RIGHT STUFF
Sarah Errington / Camera Press The World Bank claims to make decisions on the basis of pure economics. In fact, it has enthusiastically supported corrupt, right-wing regimes while giving a wide berth to countries that challenge its free-market philosophy.

  • When Chile's left-wing government of Salvador Allende was elected in 1971 the Bank effectively stopped all loans. Funding was resumed shortly after the 1973 military coup.
  • Shortly after the 1979 revolution the Bank stopped lending to Nicaragua claiming that the Sandinista administration was biased against the private sector. It had no problem with the Somoza dictatorship.
  • Zaire's notoriously corrupt President Mobutu has virtually destroyed his country's economy yet the dictator's embrace of free-market rhetoric has resulted in unstinting support from the Bank.9

Sources:
1 World Bank Annual Report, 1989
2 The World Bank and The International Finance Corporation, World Bank, 1986
3 NGO Guide to Trade and Finance NGLS/NY, 1989
4 UNICEF State of the World's Children, 1990
5 World Bank Response to the NGO World Bank Working Group, 1990
6 Probe Alert, August 1990
7 The Emperor's New Clothes, World Policy Journal, Spring 1990
8 UN Economic Survey, 1989
9 Teresa Hayter, Aid: Rhetoric and Reality, 1985.

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