Among the most famous and large-scale international financial organizations is the World Bank. The activities of this institution are recognized by experts as extremely important from the point of view of balanced development of the economies of the world. Among the key areas of the WB's activities is assistance to developing countries in the field of improving the national economy model. To successfully solve this and other problems, several institutions were created at once in the WB structure. What is their specificity? How are WB functions implemented?
World Bank Background
What kind of institution is the World Bank? The full name and functions of this structure - how are they remarkable? The World Bank (The World Bank, WB) is an international financial organization that combines several different institutions.
In accordance with public data reflecting the activities of the WB, the main task of the bank is to increase the level of economic development of states by providing them with financial assistance from wealthy countries. The organization was established in 1945. The headquarters of the bank is located in Washington.
WB structure
Consider the specifics of the institutions that form the structure of the World Bank. The financial institution under consideration includes:
- IBRD (or International Bank for Reconstruction and Development);
- IDA (Development Development Association);
- IFC (or International Finance Corporation);
- MAGI (agency responsible for investment guarantees);
- ICSID (Dispute Resolution Center for Investment Projects).
These organizations are called upon to provide loans to countries in need at affordable rates, and in some cases interest-free. Grants are also supported by countries. The conditions for providing appropriate assistance to the WB are liberalization of the economy, privatization, necessary reforms in the field of education, healthcare, and infrastructure improvement.
We now consider the main functions of the World Bank.
WB Functions
Researchers distinguish their following spectrum:
- investment activities (mainly in developing countries, in the areas of health care, as well as education);
- advisory support to national governments on economic issues, analytical activities;
- improvement of financial services provided;
- intermediary activities (in the field of resource allocation between developed and economically lagging countries).
Thus, the financial structure under consideration plays a significant role for the global economy. The noted functions of the World Bank are important from the point of view of balanced economic development of modern states. Let us now consider through what mechanisms the WB implements them in practice. You can consider this issue in the context of the activities of the above institutions, which are part of the World Bank. Let's start with the IBRD.
The specifics of the IBRD
The IBRD or the International Bank for Reconstruction and Development is an institution that, apart from the World Bank, is also subordinate to the UN. Many functions of the World Bank are implemented on the basis of this organization. In fact, the IBRD is the core structure of the World Bank. It can be noted that the institution was formed earlier than, in fact, the WB itself, in 1944. The International Bank for Reconstruction and Development was formed after the Bretton Woods Conference. The purpose of his institution was to stimulate the recovery of the economies of states that suffered during the war.
In the 50s, the IBRD began to fulfill some of the functions of the World Bank, which we noted above - in particular, to provide loans to developing countries. In the 90s, the organization began to issue loans of the appropriate type to countries with economies in transition. The specifics of IBRD loans is long-term. The institution issues loans for a period of about 15-20 years. The financial assets of the bank are formed by membership fees, the amount of which depends on the quotas determined for the participating states.
The specifics of IDA
Another critical structure responsible for World Bank functions is IDA, or the International Development Association. It was formed in 1960. The aim of its establishment was to provide soft loans with a long repayment term of about 40-50 years to states characterized by a low level of economic development. So, for example, in 1961, the organization decided to issue appropriate loans to India, Chile, Honduras, as well as Sudan. IDA not only provides loans to assist governments of countries with low levels of economic development, but also promotes the export of goods from developed countries to developing countries. Also in the competence of IDA - the implementation of various social programs. Countries that are unable to service loans under IBRD conditions can rely on IDA loans. Since its inception, the organization has issued loans of more than $ 90 billion.
What does IFC do?
IFC, or the International Finance Corporation, is another critical structure that includes the World Bank group. Its functions are to provide loans aimed at stimulating the industry of countries with a low level of economic development. The main goal of this organization is to promote investment in projects implemented in developing countries, to improve the living standards of citizens living in them. Loans from IFC are issued to private enterprises, which show good figures on profitability. Loan term - within 15 years. Over the entire period of its activity, the organization issued loans for more than $ 20 billion.
Features of MAGA
The World Bank is especially noteworthy - the structure and functions of this organization are fairly balanced among separate structures. Among the institutions responsible for solving a large volume of tasks in the field of investment are MAGI. What does it do? MAGI, or the International Investment Guarantee Agency, deals with the insurance of relevant financial investments from various non-commercial risks, as well as consulting work in the process of communication with state governments. MIGA stimulates the attraction of capital to developing countries in order to improve their economic performance.
Risks that are analyzed by the organization’s experts may reflect the specifics of currency transfers, confiscation of private property, and political instability. MIGA helps to ensure the sustainability of financial flows in developing countries, as well as inform investors about the prospects of monetary investments in the economies of the respective countries. Among the main tools of MIGA's activities are guarantees. The organization since its inception issued them in the amount of more than 17 billion US dollars. With the assistance of the institution, more than $ 50 billion worth of investments were made in developing countries.
The specifics of the work of ICSID
Studying the specifics that characterize the structure and functions of the World Bank, it is imperative to investigate the features of the ICSID, or the International Center for the Settlement of Investment Disputes. This organization promotes the protection of the interests of partners participating in various investment projects, within the framework of accessible legal procedures. ICSID deals with the elimination of possible non-economic barriers that accompany the interaction of states and enterprises in the process of international cooperation. The institution in question fulfills its functions through two main mechanisms - reconciliation, as well as arbitration proceedings. ICSID services are paid, participation in them is voluntary.
Features of WB loans
We will study the specifics of loans that are provided in order to solve the main task that is in the competence of an institution such as the World Bank - the development of countries with a lagging economy. The organization provides loans in two main varieties. The first is investment loans. They are provided with the aim of financing industrial sectors in the economies of developing countries, as well as in other segments of economic systems that are important in terms of solving socio-economic problems. Secondly, these are targeted loans aimed at stimulating the political development of countries. Their receipt involves the implementation of necessary reforms by states.
Consulting support
In some cases, the World Bank can perform functions that actually come down to intermediation between other financial institutions or investors and the governments of countries in need of financial support. For example, obtaining the necessary loans by the state in some cases may be related to the need for their economies and political systems to meet certain criteria that lenders want to see. The activities of the World Bank may, therefore, be associated with advisory support from governments to implement measures aimed at achieving compliance of the national economic and political systems with the necessary criteria.
WB Group Strategy
The main areas of WB activities, both in the field of credit policy and in the field of consulting services, are recorded in a separate document - WB Group Strategy. This source is used as a key one in the World Bank’s interaction with governments that are in need of financial assistance. At the same time, the strategy is framework-based. The specific directions of the WB's activities in the field of assistance to a particular state are being worked out based on the specifics of its economy and political system.
Sources of financing activities
So, we examined some of the key aspects of an institution like the World Bank. The decoding and functions of this organization are also known to us. We will now study such an aspect of WB activities as raising funds to finance activities. What are the sources of this international organization?
There are different ways to attract WB funds for development, as well as performing key functions. For example, with regard to IBRD loans to developing countries, the corresponding financial resources are raised through the sale of bonds with a high rating. Another source involved in WB activities is equity, which is contributed by member countries of the organization. This resource is also used to fulfill obligations related to servicing debt obligations to the IBRD. The WB also has reserve capital in the amount of more than 193 billion US dollars. In practice, the organization has not yet used this resource, but it has such a right.
WB and other international organizations
So, we have studied the key features that characterize the World Bank. The full name and functions of this institution are also known to us. Is it possible to say that the WB is a unique institution of its kind? This is partly true. But there are a number of international organizations whose functions have certain signs of similarity with the activities of the World Bank. Let's consider a number of examples.
In particular, the functions of the World Bank and OPEC have a certain proximity. The fact is that a significant percentage of the countries that are members of the Organization of Petroleum Exporting Countries are classified as developing. OPEC's functions are expressed, in particular, in stimulating the development of their economy through streamlined procedures for exporting the corresponding type of raw materials to world markets.
World Bank and IMF
The functions and role in the world economy of the World Bank are sufficiently close to those for the IMF (International Monetary Fund). These organizations are also united by the fact that both of them are established with the aim of restoring the economies of the countries of the world after the Second World War. The principles of building the organizational structure of the WB and the IMF are fairly close. So, for example, the contribution of a state to the total capital of an institution determines the degree of its influence on the institution. The similarity of the functions of these organizations can be traced to the fact that they are concentrated around solving problems of stimulating the economic development of countries that need external financial support, for example, due to a deficit in the balance of payments.