The International Bank for Reconstruction and Development (IBRD), generally known as the World Bank, was established in 1945 as a result of decisions taken at the United Nations Monetary and Financial Conference held at Bretton Woods (U.S.A.). It is a specialized agency of the United Nations. In the last 50 years it has developed many pioneering concepts and a philosophy of international aid. Here Ismail Serageldin, Vice President of the Bank responsible for its Department of Environmentally Sustainable Development, outlines for Courier readers the broad range of its activities.
What exactly does the World Bank do?
Ismail Serageldin: Its primary role is to finance development projects carried out by its member countries, especially the poorer ones. These projects are selected solely on the basis of economic criteria. When a borrower country exceeds a certain per capita income threshold, it becomes a donor country. A lot of countries have gone through this process, including some European countries.
Has the Bank's philosophy changed over the years?
I. S.: Yes. In contrast to what a lot of people seem to think, the Bank is changing constantly. Back in 1944, its primary goals were development aid and the fight against poverty, but they were harnessed to an immediate objective, that of post-war reconstruction in Europe. The Bank's first loan was made to France in 1947.
But the Marshall Plan, not the Bank, was the main financial tool in European reconstruction, and so the Bank was able to take an interest in the so-called "developing countries" early on. Although its resources were rather limited at the time, it brought off nothing less than a financial miracle.
In order to promote the private sector in these countries, without any guarantees from the governments concerned, it created the International Finance Corporation (IFC) in 1956.
Then, when the first African countries achieved independence, some very poor countries needed loans at preferential rates but did not meet the Bank's solvency criteria. The International Development Association (IDA) was founded in 1960 to meet this need. This was the Bank's first major step in the war on poverty. Loans made by IDA can be interest-free for up to forty years with a ten-year grace period, whereas the World Bank usually makes fifteen- to twenty-year loans with only a three-to five-year grace period and an interest rate 0.5 per cent higher than that at which the Bank itself borrows.
In 1988 the Multilateral Investment Guarantee Agency (MIGA) was established to encourage the flow of private sector credit to the poor countries by providing investors with guarantees against political and noncommercial risks in these countries.
When former United States Secretary of Defence Robert McNamara became President of the Bank in 1968, was his arrival welcomed?
I. S.: It certainly was! He brought new blood into the Bank. He was a very dynamic man with a strong grasp of essentials. At that time a big debate was going on as to whether or not the World Bank should be engaged in operations targeted at the poor - initially it had been concerned exclusively with countries' economic growth. Redistribution of income (investment in human resources) was regarded as a political matter, within the sphere of state sovereignty. This was the beginning of a process of reasoning which in 1991 culminated in the Bank's demonstration that growth and redistribution were complementary.
In 1973 Robert McNamara said in a speech in Nairobi that the Bank was committing itself to the war on poverty and targeting the lower 40 per cent of the income distribution, in other words those who were so poor that their condition was below any definition of human dignity. From then on economic growth and poverty reduction were the Bank's objectives. The idea of integrated rural development was launched, and the following year the Bank began to attack the problem of urban poverty. …