At Its 70th Anniversary, Assessing the World Bank’s Ups and Downs

The World Bank turned 70 years old this summer, a milestone that has been reached with surprisingly little fanfare or criticism in comparison to past anniversaries. In the ever changing landscape that is development, the World Bank has been a giant. Since its inception in 1944, the World Bank has distributed over $400 billion worth of loans and grants.

The Bank was originally set up to drive the post-World War II reconstruction and redevelopment of Europe and consisted of a small staff of engineers and financial analysts based in Washington, DC. It has since expanded into a global institution whose stated goals are worldwide poverty alleviation and the presence of a multidisciplinary staff, a third of which would be based in other countries. The World Bank, along with the International Monetary Fund and World Trade Organization, formed the trio of multilateral financial institutions referred to as the Bretton Woods Agreement after the conference and charter that resulted in their foundation. The World Bank has had an undeniable impact on the fate of the world, especially the developing world, but for all of its successes there are have also been many overlooked missteps and downright detrimental policies.

In its current structure, the World Bank consists of 188 member countries represented by a board of 24 members and a president. The board of directors always consists of the 5 largest donors (The US, Japan, Germany, France and Britain) and 19 other executive directors chosen by the remaining countries to each represent groups of countries. For example, Australia’s executive director also represents a host of Pacific nations, Cambodia and South Korea. The president is always selected by the US and, unsurprisingly, the position has never been held by a non-American. This structure and nomination system has garnered a lot of criticism, especially from the developing world, as the Bank pledges to not take a political stance. Regardless, there are concerns about the Bank being used as a tool by developed countries, a recurring problem in the past, especially during the Cold War.

The Bank’s very first loan was to France in 1947. Chosen over Poland and Chile, France received $250 million for reconstruction efforts, making it the biggest loan the Bank would give for the next 50 years even though it was half of the amount France requested. The bank had very strict conditions for the loan, stipulating that debt repayment to the World Bank had priority over any debts to other countries. US State Department also demanded that the French government remove any of its members affiliated with the Communist Party. The French Government swiftly complied and the loan was approved within hours. Post-war reconstruction loans were soon granted for the Netherlands, Denmark and Luxembourg that same year. With the implementation of the Marshall Plan, European countries started receiving aid from other sources and the Bank started targeting more and more developing nations.

Until 1968, all funds were earmarked for the construction of infrastructure such as seaports, roads, and power plants that would generate income to enable the country to pay the Bank back. With former US Secretary of Defense Robert McNamara’s nomination for president of the World Bank, measures to meet the basic needs of the developing world began to be implemented. Policies shifted towards the construction of schools, hospitals, the promotion of literacy and agricultural reform.

As expected, the World Bank’s history has been marred by much of its most criticized policies. From 1976 to 1980 debt in the developing world rose at an average rate of 20% annually. The introduction of Structural Adjustment Programs, which instituted strict budgetary constraints and changes to economic and trade structure that were required conditions to receive aid from the bank, have often been criticized for unintended consequences, such as reduced health spending to fit within budget. Health expenditure in countries under World Bank or IMF budget restrictions grew at about half the speed as similar countries receiving aid from other sources and the Bank’s promotion of health care user fees diminished the role of governments in delivering services, exacerbating poverty even more. As UNICEF reported, World Bank Structural Adjustment Programs have “reduced the health, nutritional, and educational levels for tens of millions of children in Asia, Latin America, and Africa”.

The Bank also has an unsavory history of supporting less than reputable causes. Controversial cases include Ceausescu of Romania, the Apartheid regime in South Africa, Portugal while it refused to relinquish its colonial power, Indonesian regimes after 1965, Mobutu of Zaire, Marcos of the Philippines, Brazil after the coup in 1964, Pinochet of Chile and Somoza of Nicaragua. Despite its claims to the contrary, the Bank was often a U.S. tool during the Cold War to gain allies and pull countries away from the Soviet Bloc, even if that meant supporting dictatorships, colonial powers and regimes with known human rights violations.

Thankfully, the modern incarnation of the Bank seems to have made significant improvements since the 1980s. The 1990s and 2000s showed an increased commitment towards becoming an all-around development agency that addressed health, education, corruption and the environment in response to some of its criticisms. The Bank put forth its “Six Strategic Themes” in 2007 that consisted of:

• Helping to overcome poverty and spur sustainable growth in the poorest countries, especially in Africa.
• Addressing the special challenges of states coming out of conflict.
• Developing a competitive menu of “development solutions” for middle income countries, involving customized services as well as finance.
• Playing a more active role with regional and global “public goods” on issues crossing national borders, including climate change, HIV/Aids, malaria, and aid for trade.
• Supporting those advancing development and opportunity in the Arab world.
• Fostering a “knowledge and learning” agenda across the World Bank Group to support its role as a “brain trust” of applied experience.

Although many of its decisions have been questionable, the World Bank had helped lift over 230 million people out of poverty by 1996 and policies that are emblematic of its controversial Structural Adjustment Programs were instrumental in the “East Asian Miracle”, the rapid economic rise of places like Taiwan, Hong-Kong, Korea and Singapore. There has been increased competition for influence as the Brazil, Russia, India, China and South Africa (BRIC) just launched their own New Development Bank (NDB) and announced the Contingent Reserve Arrangement to reduce dependence from the World Bank and IMF. Even so, The World Bank can celebrate its 70th year as one of the biggest players in development and hopefully continues it trajectory under President Jim Yong Kim towards an improved commitment to the world’s most needy.