The World Bank was originally set up as the International Bank for Reconstruction and Development (IBRD). Born in a conference held at Bretton Woods, New Hampshire, U.S.A. in July 1944, along with its twin, the International Monetary Fund (IMF). Together they came to be known as the Bretton Woods sisters. The conference that brought forth the two sisters, was actually taking place at a very significant time, World War II had just ended.

Europe was the major theatre of war, which had been devastated. In contrast, the United States of America was the only country at the end of the war that still had its productive capacity intact and could also compensate others lacking such capacities. Its economy and position was therefore, the strongest in the new dispensation.

The founders envisioned two primary functions in the post-War era. The reconstruction of Europe and guaranteeing private banks’ project loans to poorer countries. As an agent of reconstruction, the Bank was still born. What war shattered Europe needed was not interest-bearing loans for projects but rapidly disbursing grants and concessional loans for balance of payment support and desperately needed imports to meet their basic needs. In all, the Bank advanced only four loans for reconstruction totaling US $497 million. It was the US-initiated Marshall Plan, not the Bank, that was the engine of European reconstruction, disbursing $41 billion by 1953.

The World Bank and the IMF were designed primarily by officials of the US government with inputs from the British delegation to the Bretton Woods Conference. The IBRD’s headquarter was located in the USA because its charter specified that "the principal office of the Bank shall be located in the territory of the member holding the greatest number of shares": At the time of founding, USA was the largest shareholder (37%) among the member nations. Significantly, the choice of Washington D.C. over New York city to headquarters it was considered a victory for the US position that the World Bank and the IMF should be subject to close control by national governments over the argument by British economist Lord Keynes that the institutions should operate as autonomous institutions, divorced from the vicissitudes of national politics.

Initially they had exclusive but closely related responsibilities. The IMF was supposed to provide short-term finance to countries facing a crisis of foreign exchange. The World Bank, however, was to rebuild the shattered economies by financing long-term and medium-term development by providing specific project loans for building highways, laying rail-tracks, building power plants, etc.

The WB and IMF have similar governing structures, located at a common venue in Washington. The jointly held annual meeting is a family get-together of sorts.

The governing structure of the Bank is not democratic. It is not based on the principle of "one country one vote", but the "one dollar, one vote "system. Votes are weighted according to the amount of money each country puts into the Bank. Each country has 250 votes plus one additional vote for every share that it holds, each worth US $1 ,00,000. Members buy shares by subscribing money to the Bank. For any amendment in the rule requires 85% of the votes. The US being the largest shareholder with 19.63% votes can veto any amendment.

While, China and India together have only 5.10% of the total votes, despite representing 36% of the world’s population. The rich countries have effective say in policy matters.

The World Bank has the following organisational structures:

Under the World Bank’s Articles of Agreement, all of the Bank’s powers are vested in a Board of Governors, which has one representative from each member country. A nation’s Governor typically is that country’s Minister of Finance or equivalent, acting ex-officio. While certain important decisions are reserved for the Board of Governors, it meets only once a year. Regular and routine operations are conducted by its Executive Directors [EDs] and the President.

As provided for in the Articles of Agreement, the board consists of 22 EDs, with alternates. The five countries having the largest number of shares of capital stock (currently USA, Japan, Germany, France, and United Kingdom), each have a permanently appointed Executive Director, while the remaining Executive Directors are elected by the governors representing the other member countries. While the Executive Directors owe allegiance to the Bank’s Articles of Agreement, they also are subject to the wishes of the governments they represent.

The World Bank president is the chairman of the Board of Executive Directors and serves as the chief of the Bank’s operating staff. The President is appointed by the Executive Directors. The President conducts, under the direction of the executive directors, the ordinary business of the Bank. All the presidents of World Bank have been Americans, reflecting the initial and continuing influence of the United States on the Bank.

The officers’ and staff of the World Bank are divided into six regional groups, along with various administrative sectors. The regional groupings are: 1. Africa; 2. East Asia and the Pacific; 3. South Asia; 4. Europe and Central Caribbean. Each country group is headed by a Bank vice president. In addition to the regional groupings, there are nine operational sections covering such areas as accounting, economics and personnel, and a number of international field offices.

The World Bank’s legal department is separate from the regional groups, but its lawyers are assigned to a specific country or operational sections within regional groups.

Like a Hindu god, the Bank has 4 arms—the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).

Founded: 1944

Members: 176

Function : The International Bank for Reconstruction and Development (IBRD) lends money at near-market rates to developing countries. According to its own literature, it lends money "to help reduce poverty and to finance investments that contribute to economic growth." In 1993, the IBRD approved $16.9 billion in loans to 45 countries. Loans are divided between structural adjustment program loans, sector loans, and project loans. The payback period is 15 to 20 years.

All IBRD loans are guaranteed by creditor governments, through appropriations decided by their individual governments. Consequently, World Bank bonds enjoy the security of triple-A ratings, signaling very low risk. Most IBRD funds come directly from bond sales.

Activities in India: Nearly 51% of the total Bank lending to India is by IBRD loans, This includes various developmental projects like Nathpa Jhakri Project, National Dairy Project and Upper Krishna Irrigation II Project.

Founded:1960

Members: 150

Purpose : Concessional loans to poor countries.

Function : Gives 90% loans to poorer countries in the field of agriculture and rural development. It generally finances a larger percentage of total project costs than the Bank. In 1988, IDA lent US $4.5 billion for 99 projects and adjustment programmes, amounting about 23% of total Bank lending. The IDA requires frequent infusions of new contributions and is extremely vulnerable to shifts in the political climate for aid. The bank holds IDA replenishment discussions approximately every three years, with a round just completed, which is referred to as IDA 10. (IDA 9 was in 1989, and IDA 11 is expected to be held in 1996). IDA takes presently an opportunity to raise human rights concerns in the Bank in a bilateral context.

Activities in India: The structural adjustment programme and Subarnarekha dam are examples of IDA credits in India.

Founded: 1956

Members: 153

Purpose : IFC backs loans for private sector investment in member countries without guarantees of repayment by the concerned member government. The IFC was established to assist the economic development of less developed countries by promoting growth in the private sector of their economies and helping to mobilize domestic and foreign capital for this purpose. Membership in the IBRW is a pre-requisite for membership in the IFC. Legally and financially, the IFC and the IBRD are separate entities. The IFC has its own operating and legal staff, but draws upon the Bank for administrative and other services.

Function : Bulk of its money comes from capital subscription of its members. It has the same directors as those from the Bank and operates on a weighted voting system. Most of the IFC’s investments are in manufacturing followed by mining, energy, tourism and public utilities.

Activities in India : Since 1959, the IFC has invested about one billion dollars in 57 companies operating in India, in shipping, iron and steel, chemicals, fertilisers, building and industrial equipment, etc. The TISCO modernisation plan and the Chandil Iron Project in Bihar are a few examples.

Founded: 1988

Members: 101

Purpose : To encourage the flow of private foreign investment to the developing countries by guaranteeing the investments of foreign cooperation against risks such as civil war, host government currency restrictions, nationalisation, etc. MIGA also offers investors guarantees against non-commercial risks, advises developing member governments on the design and implementation of policies, programs and procedures related to foreign investments; and sponsors a dialogue between the international business community and host governments on investment issues.

Function : The President and Board of Directors of MIGA are the same as those of the World Bank.

Activities in India : In 1993, India became a member of the MIGA.

Bank projects are identified in an ongoing process within a broad based framework evolved by the Bank staff and representatives of a recipient country’s government on the problems and needs of that country.

The following is a description of the IBRD project loans or IDA credit process.

Identification Stage: The idea of a project often arises out of existing work in the recipient country. It’s part of a continuing dialogue between Bank staff and representatives of the recipient country’s government. A frequent aim is to identity projects that will help remove ‘bottlenecks’ and other constraints. But in consonance with the Bank’s reputation as a slow, lumbering institution, the identification stage can take over a year.

Preparation Stage: This stage begins after a project’s incorporation in the country’s lending program. Its purpose is to define objectives, identity issues & problems, and set a timetable for further processing. Preparation considers the full range of technical, institutional, economic and financial conditions necessary to achieve the project’s objectives. It often involves economic and sociological studies and feasibility studies regarding particular solutions proposed. This work normally takes one to two years.

Appraisal Stage : The appraisal stage is its sole responsibility. It involves an evaluation of the technical, institutional, economic and financial aspects of the project. The appraisal report sets forth findings & recommendations for terms & conditions of the loan. Since the Bank staff is closely involved in its identification and preparation, appraisals rarely result in rejection.

Negotiation and Board Approval : This stage involves the drafting and negotiation of the legal documents which deal with all of the issues raised prior to and during appraisal. On completion of negotiations, the appraisal report, amended to reflect the consensus reached is presented to the Board of Executive Directors together with the President’s report and the proposed loan documents.

Implementation Stage: Responsibility for project implementation is that of the borrower. The Bank’s role is to supervise implementation to ensure conforming to project specification. In 1992, two internal bank reviews identified important problems in project implementation and its evaluation by the Bank. The June 1992 report of the Morse Commission established to investigate the Sardar Sarovar Dam in the Narmada Valley of India, found serious flaws in the project’s resettlement & rehabilitation besides and in its environmental impact. The September 1992 report of the Portfolio Management Task force headed by Willi Wapenhans confirmed on a broader basis many of the findings of the Morse Commission.

Evaluation State : The final step in the project cycle is an ex post audit by the Operations Evaluation Department (OED), a division of the Bank which is separate from the operating staff and reports directly to the Executive Directors. After Bank funds have been fully disbursed, the Bank project staff prepares a completion report which assesses the degree to which the goals and estimates set forth in the appraisal have been met. The OED prepares an audit report and both the audit and completion reports are submitted to the Executive Directors.

The World Bank has three types of loan facilities listed below:

Traditionally, the World Bank has been giving loans to specific projects of the member countries. In 1987, the combined lending of the World Bank to the energy sector was 21%. Most of it financed big hydroelectric dam projects (such as Narmada and Subamarekha in India), coal mining projects, transportation projects like roads, agricultural, telecommunications, industrial and urban development projects.

These loans have been increasingly given by the bank in 1980s as countries in the third world grapple with debt problems. Although these loans are still project oriented, only a part of the money is used to meet the costs of specific projects while the rest goes to support policy changes in the relevant sector. For instance, a part of the loan for the energy sector would be used in some specific project say a thermal power project but the rest will be disbursed against changes in the policies of the energy sector such as cut in subsidy for electricity, greater role for private companies in exploration and development of natural gas and oil, etc. Such sector-wise policy changes are the distinctive feature of sectoral adjustment loans.

These loans are completely delinked from projects and disbursed quickly against commitment to carry out major economic policy changes. As in the case of IMF loans, the SAL programmes require the borrowing country to make policy reforms, albeit fundamental institutional changes. The World Bank has given more SAL loans in the 1980s and is committed to providing more loans of this kind during the 1990s. In 1988, 27% of total bank lending was in the form of SAL. In December 1991, India received US $8 billion from the World Bank under the structural adjustment loan. These loans are designed to support a greater reliance on market forces, cuts in government price interventions and subsidies, greater reliance on private sector as compared to the public sector and a liberalised trade policy.