How Was the World Bank Formed? A Brief History
Signing of the agreement founding the World Bank,
December 27, 1945.
The following is an excerpt from an article by
Gustavo Castro Soto, Chiapas al Dia
Bulletin, May 8, 2002, No. 289.
Together with the International Monetary Fund
(IMF), the World Bank (WB) was formed in 1945 with
the participation of 38 countries -- it now has
181 member countries. The WB was formed with the
principal goal of boosting the economies of the
European countries that participated in World War
II and that ended up destroyed and impoverished.
Among these countries were France, Germany, Japan,
Italy, the United Kingdom and others. France was
the first country to receive a loan for the
equivalent of $250,000,000 at the time. Later,
loans were given to Chile, Japan and Germany, among
many other countries. Bit by bit the WB Group was
formed, composed of diverse types of banks for
diverse types of loans. Since its foundation, the
WB has had profits each year from the payment of
interest, speculation on the stock exchange and
for the fees that the governments must pay to be members and thus have a right to
request loans from the bank. For example, in 1970
the WB lent out $2 billion and two years
later in 1972 it lent out $3 billion and then $10 billion in 1979.
The debt of the poorest countries or those in the
process of developing reached such height that the
WB began to lend these governments money to pay
the interest on their original debts to the WB. In
1980, the owners of the WB took advantage of these
debts to grant Turkey a loan of $200,000,000
under the severe conditions of the so called
Structural Adjustment Program (SAP), the function
of which will be explained later. For the year
1990, Mexico received the largest loan ever
granted for a total amount of $1,260,000,000 in
order to pay its external debt. In 1992,
Switzerland, the Russian Federation and twelve
republics of the former Soviet Union became part
of the WB.
The protests and pressure against the WB, its Structural Adjustment Programs and it debt policies were such that, in 1994
the Public Information Centre was opened so that
citizens could obtain information about the
projects that the WB was carrying out in different
nations. In 1997, Uganda was the first country to
which the Heavily Indebted Poor Countries (HIPC)
Initiative was applied. Part of Uganda's debt with
the WB would be pardoned in exchange for the
application of the very extreme policies of
structural adjustment. However, this pardon will
take place years after these changes have been in
effect.
What Institutions Make Up the WB Group?
The WB Group is made up of five institutions:
1) The International Bank for Reconstruction and
Development (IBRD): This was the first WB
institution created in 1946. It grants loans to
countries with average incomes and to the poorest
nations which are able to pay their debts and low
interest rates but at the cost of other conditions
which impoverish nations. For this reason, their
external debts are now unsustainable. The majority
of its funds come from international capital
markets (speculation on the stock exchange). The
number of votes held by its members is according
to the member's economic contribution and its
offices are in the country that contributes the
most money. That is to say that the U.S. both
hosts and operates this institution. The loans and
low interest should be repaid within 15 to 20
years. All of the countries have been obliged to
pay on time. If a country wants to be a member of
the IBRD, it must pay into the IMF which also
controls the economies of the nations. The IBRD
consists of 181 member countries. Mexico became
part of the IBRD in 1945 and it is from this bank
that it receives its loans.
2) The International Development Association
(IDA): Formed in 1960, the IDA gives loans to the
poorest nations -- those that do not have resources
and hence, only pay a commission (less than 1 per
cent) for administrative costs. The loan should be
paid back over a 35-40-year time period with the
first payment being made after 10 years. Not one
country has delayed its debt. The money comes
mainly from the U.S., France, Japan, the United
Kingdom and Germany, and other developing
countries such as Argentina, Brazil, Hungary,
Botswana, Korea, Turkey and Russia.
There are almost 40 countries that contribute to
this fund and they recover their contributions
every three years. In the past few years, the
IDA's funds have represented 25 per cent of the
total resources of the WB. If a country wishes to
join the IDA, it must be a member of the IBRD and
it must pay its fee. The IDA presently has 160
member countries. Mexico joined the IDA in 1961
though it does not actually fit the bill of an
impoverished country since, according to the WB,
Mexico has the 13th largest economy in the world.
Only a very few countries are categorized as being
very poor. Such is the case for Haiti, Bolivia,
Honduras and El Salvador.
3) The International Finance Corporation (IFC):
The IFC was created in 1956 to lend money to
companies with the goal of promoting foreign
investment after World War II. If a country wants
to join the IFC, it must be a member of the IBRD,
and to join the IBRD, it must be a member of the
IMF. The IFC has loaned funds to about two
thousand companies in 129 countries. In 1999
alone, the IFC lent $5,280,000,000 to companies.
The IFC has a membership of 174 countries.
4) The Multilateral Investment Guarantee Agency
(MIGA): MIGA was created in 1988 and it provides
security for company investments in the event that
wars, civil unrest or terrorism arise or if a
government does not comply with the rules of the
market or if it expropriates goods that affect
investment. This is another way in which the poor
governments benefit companies in that these
governments must repay MIGA the money that was
given out to the insured companies for losses. For
this reason, not all countries want to accept that
there are political conflicts within their
borders. MIGA offers insurance to countries for no
more than $225,000,000 at a rate of $50,000,000
of insurance per company project. Until now, MIGA
has provided insurance to no more than 300
companies in 52 countries and not one has had to
collect its insurance. Given that both MIGA and
the IFC offer loans to companies, they do not give
out much public information and society does not
have the power to influence the projects that it
supports nor to evaluate their impacts. MIGA has
151 countries as members.
5) The International Centre for Settlement of
Investment Disputes (ICSID): The ICSID was created
in 1966 to resolve the differences and conflicts
that arise between foreign investors and the
national governments where the investment is
taking place. It has 131 member countries.
Although this allows companies to secure their
investments (i.e., they can procure compensation
from the government via insurance), Indigenous
peoples, campesinos and the general population
have no insurance against the damage caused by WB
projects.
Who Is the Owner of the WB?
Although one might suppose that all of
the member countries are the "owners" of the WB,
the five most important shareholder countries
are the real owners. Among these shareholders
are: the United States (which contributes 16.98
per cent of the WB funds), followed by Japan
(6.24%), Germany (4.82%), France
(4.62%) and the United Kingdom (4.62$). These five nations, along with Canada and
Italy make up the G7. Obviously, the one that
contributes the most, has the greatest influence
over the decisions that are made.
What Is the Structure of the WB?
The Board of Governors meets once a year
(September or October) and is made up of the
government representatives from the 181 member
countries. At this meeting, nothing is decided. It
is an information meeting only. Later, the 181
countries divide into 24 Executive Directors
according to their economic contribution to the
WB. The United States, Germany, France, Japan and
the United Kingdom each have their own post and
they have the greatest weight in the making of
decisions. The remaining 176 countries make up the
rest of the 19 groups in such as way that the sum
of their economic contributions equals one vote.
In these latter groups, countries take turns
representing their group. Mexico shares its
Executive Director post with eight other countries
-- El Salvador, Costa Rica, Guatemala, Nicaragua,
Panama, Honduras, Venezuela and Spain. Some of
these countries will also share in the Plan
Puebla-Panama.
The Executive Directorate names the president of
the WB. This position is always filled by the
country that contributes the most economically to
the WB and is renewed every five years. Hence, the
United States always occupies this position. The
current WB president is James Wolfensohn. There
are also six regional vice-presidents: East Asia
and the Pacific, South Asia, Europe and Central
Asia, Middle East and North Africa, Africa
Sub-Saharan and, Latin America and the Caribbean.
As well, there are four sector vice-presidents.
The WB employs around 6,000 people around the
world.
Where Are the Offices of the WB?
In addition to the main offices in
Washington, DC, USA, there are 67 offices
in total throughout the world and 25 per cent of
them are in Latin America. In Latin America
there are 17 offices in 15 countries: Mexico,
Jamaica, Haiti, Guatemala, Honduras, Venezuela,
Nicaragua, Costa Rica, Colombia, Ecuador, Peru,
Bolivia, Paraguay, and Argentina and there are three
offices in Brazil.
Where Does the WB Get Its Money?
The main source of money is from the personal
taxes and other public funds that governments
collect and then use to pay their WB fee. This
makes them WB members and hence, they are able to
solicit WB loans. As well, the WB makes a lot of
money from stock exchange speculation -- money that
does not generate employment and that is not
taxable. Finally, the foreign debts that have been
created in many countries are so great that the WB
makes easy money from the interest paid by these
indebted governments.
How Does the WB Lend Money?
The WB is the largest financial institution in
the world and each year it loans out around $30
billion to its client governments and companies.
The WB states that it wants "to fight poverty with
passion..." and it promises loans with low
interest rates. Nonetheless the number of people
who now live in poverty, with less than two
dollars a day to live on, is at three billion and
growing. How is it then that the WB states that it
has combatted poverty for the past 50 years of the
WB's existence? The key to understanding this is
in the other conditions that the WB imposes on
those who ask for a loan under the Structural
Adjustment Program. As with all banks, the
WB is a bank intent on doing good financial
business, as they themselves acknowledge. It is
not a humanitarian bank nor a charity and much
less a bank to distribute the wealth of the world.
The SAPs that the WB imposes as a condition on
those governments that are granted money, consist
of adjusting the economic and political structure
of the nations with the goal of adapting the
country to the free market and to liberal
macroeconomic policies, thus, facilitating the
investment of transnational capital from the most
powerful companies in the world. If, with one hand
they "lend" money to the poorest nations via the
IDA, with the other hand they demand that severe
measures be taken to benefit their economies,
their companies and to secure their investments
with the MIGA.
The severe measures of the WB's SAPs are made in
close coordination with the IMF, with the goal of
increased economic liberalization and reform.
Thus, loans are made with the conditions that
governments carry out the following:
1) Privatize the companies, institutions and
other areas controlled by the government (in
Mexico -- CONASUPO, telephones, highways, mines,
ports, airports, gas, petroleum, natural
resources, water, electrical energy, education,
health care, research centres, etc). This leaves
investors with a monopoly on basic services, in
addition to generating unemployment and leaving
the state without resources.
2) Eliminate subsidies and liberate price
controls (on corn, social programs for the poorest
sectors, etc.). The companies argue that subsidies
for only some are unfair, that it is not
equitable, etc. However this would cause more
poverty, migration, an increase in the price of
basic products, etc.
3) Eliminate or reduce social costs (health care,
education, services, etc). Companies argue that
private investment will be responsible for the
distribution of these services to people. For its
part, the WB wants to be certain that the
government will have money to pay its debt.
4) Adjust laws and rules to eliminate obstacles
for transnational companies (labour laws,
investment laws, etc).
5) Strengthen the judicial systems to give
security to investments, combat corruption, etc.
6) Assure property rights with the goal being
that companies have legal security regarding land
ownership.
7) Free the market by eliminating duties on
imports and all mechanisms (administrative, legal
and economic) that impede exportation and
importation of goods.
8) Devalue the national currency.
In the event that a government is complying with
the SAP, the WB pays, bit by bit, the rest of the
loan. The WB also lends to areas that will benefit
foreign investment -- these are called sector
adjustment loans. In this way the WB loans money
to a country to improve the highway infrastructure
necessary for businesses; to improve railways and
other companies that it might later demand be
privatized; to endow an industrial park with the
infrastructure necessary for investment; to do
feasibility studies for investors; to allow a
government to modify its laws in such a way as to
benefit the free market and/or to execute
privatizations; to pay the same WB and/or other
loaning institutions the money that it owes; to
modify property laws with the goal that the
government is guaranteed more taxes for paying the
debt; etc.
The WB has loaned money to those countries that
have had to pay compensation to the workers and
employees that were dismissed from their jobs when
state companies were closed or privatized.
Nonetheless, when the government has to pay back
this loan, the cost for the compensated unemployed
is the trimming of other subsidies and services as
part of the Structural Adjustment with which the
government is obliged to comply.
Each year, the WB promises more loans for the
Structural Adjustment of countries (more than 65
per cent of its funds in recent years) and for the
payment of interest and capital that is owed to
them by these same clients. Less money goes
towards development projects, specific investments
and aid to the poorest nations. To these, the
poorest nations, the WB offers to pardon their
debts years after they have put into place the
severe measures of Structural Adjustment. In this
way, the IDA takes the lead in promising loans for
business development in Latin America. Society, of
course, is not able to check out such projects, to
examine their impacts and success because such
loans are for private initiatives. We recall that
at the first Summit of the Americas carried out in
1994 to form the Free Trade Area of the Americas
(FTAA), the governments of the continent mandated
that the IDA be in charge of returning more and
more funds to the WB as regards financing of
businesses and governments.
Who Pays the Consequences?
To avoid having its policies exacerbate misery,
the WB grants loans to cushion poverty's blow. The
"Advisory Group for Aid to the Poorest lends
support to financial institutions that grant
loans, generally between $50-$100, and usually
for women, to assist them in starting up small
businesses such as the production of clothing,
artesania and milk." This demonstrates an
intention to keep the labour of the poorest at a
subsistence level but it does not make them
competitive in the international market. The
interests behind the WB will never permit that
their assistance leads to their own death:
competition.
During the 1980s, the policies of the WB created
alarming conditions of poverty. In its 1990 Report
on World Development, the WB proposed to reduce
the number of poor in the world to 300 million by
the year 2000; but it didn't take long for them to
realize that it would be the opposite. In 1994 the
WB confirmed that the measures of economic
stabilization and adjustment had not overcome
illiteracy, malnutrition and growing misery; and,
now there were 219 million more poor people in the
world.
The WB recently confirmed that of the 4.7 billion
people living in the 100 client countries of the
WB: 3 billion people live on less than two dollars
a day; ... 130 million children do not attend
primary school (80 per cent of these children are
girls); 1.3 billion lack drinking water. Moreover,
it stated that, "...the increase in poverty can
produce adverse effects in the wealthier nations,
decreasing their markets and investment
opportunities ...."
Given the social complaints against the
sharpening impoverishment of women in the world,
in 1994 the WB published its first document about
gender policy. For this to happen many years had
to pass and millions of women and children had to
lose their lives to poverty. In 1995, the WB
carried out an evaluation of its projects and it
concluded that, "about one-third of the projects
(33%) financed by the WB, once completed,
had been categorized as "unsatisfactory" by the
Operations Evaluation Department. And the failure
rate (33%), had stayed at this level for
five years." It added that, "the global results
after 20 years of this monitoring and evaluation
initiative have been disappointing ... and have
been characterized by a lack of completion." Among
other lamentable things is the fact that this
poverty that the WB has provoked is subsidized by
the same taxes taken from the increasingly poor.
In other words, the poor provide the money to make
them even poorer.
In general we can say that there are three
positions regarding the WB:
1) Those that consider the WB to be contributing
effectively to development and to the fight
against poverty in the world and who believe that
the WB's projects are effective. This position is
one that even the officials of the WB don't dare
defend.
2) Those that consider that, although the WB is
the body structurally responsible for poverty, it
is possible to influence and even pressure the WB
on its policies at a high level and, from below to
monitor and evaluate their projects, demanding the
incorporation of better policies and citizen
participation.
3) Those that consider that, even though it is
necessary to influence the policies of the WB, in
the end it will continue to put forward the
neo-liberal model and generate more structural
poverty. For this reason, the WB should disappear
and resign itself to other world mechanisms in a
new economic model that balances justice with a
real distribution of wealth.
And you, what do you think?
Chiapas al Dia Bulletin was a publication of the
Centre for Economic and Political Investigations of Community
Action of Chiapas (CIEPAC). CIEPAC was a member of the
Movement for Democracy and Life (MDV) of Chiapas, the Mexican
Network of Action Against Free Trade (RMALC).
This article was published in
Volume 50 Number 36 - September 26, 2020
Article Link:
How Was the World Bank Formed? A Brief History
Website: www.cpcml.ca
Email: editor@cpcml.ca
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