The World Bank

From reconstruction to development to equity

Book by Katherine Marshall

Article and Review by GlobalMacroForex

Author Katherine Marshall worked at the World Bank for 35 years.  While she admits to many of the criticisms of World Bank “imperialism” cited in my other articles, her book overall portrays the World Bank in a positive light, offering an “official” version of events.

We’ll cover topics including:

·      What they do

·      Financing

·      Departments within the World Bank

·      The president

·      Corruption

·      Imperialism

·      Environmental criticism

·      Program Plans

Let’s dig right in…

What they do

The World Bank is labeled an international aid agency whose goals are reducing poverty, increasing foreign direct investment, and free trade.  That’s their “official message.”  In a previous article, I discussed how the World Bank was actually implementing corrupt regressive slavery for international banks, especially Citigroup.  In this article, let’s focus on what the official story is and how it might deviate from the actual story. 

And by the way, even this “non-conspiracy mainstream” book acknowledges many problems in the organization.

The book argues that any problems created by the World Bank are unintended effects as they pursue their utopian dream.

The World Bank makes loans to poor countries for development.  They typically meet with the country’s leadership and develop a plan on how the funds will be used and what the payment plan will be.  As this author frequently notes, they frequently deviate from the plan.

“In practice, development partnerships are generally messy and poorly coordinated, with too much competition and too little real harmony and genuine cooperation.”

In addition, the World Bank makes loans for reconstruction projects from natural disasters, wars, and other emergency events.  The World Bank also helps companies get guarantees and insurance to invest in certain countries where investors are concerned about political risk.

For example, they loaned $835 million to a trust fund for reconstruction for the Asian tsunami in December 2004.  They helped rebuild after armed conflicts in the independence of Bangladesh, as well as post-conflict in the Congo, the Balkans, East Timor, Liberia, and Sierra Leone.  The book does not discuss that in many of these conflicts America armed one or both sides (as described in the Wikileaks Files article).  And the corporations like Halliburton profit from rebuilding these regions.

Financing

The World Bank is partially funded through contributions from its member governments.  In addition, the World Bank borrows $10-15 billion annually in 11 currencies, with investable bonds and notes in 48 currencies.    With all these different bonds and currencies, there is a significant market risk.  So the World Bank treasurer is an extensive user of interest rate and currency swaps, with an annual $30 billion in swaps and a book totaling $150 billion. 

So in summary, like a government, the World Bank extracts some funding via borrowing and some via taxation.  It’s just done at the international level.  In addition, the World Bank is engaged in asset management and manages $65 billion in global liquidity (i.e., cash on hand, held in portfolios and balanced funds for the World Bank Group, the staff pension fund, central banks, and other multilateral organizations).  Many different countries seek the expert advice of the Ph.D.’s who work for the organization.

“Finance ministers, central banks, and pension funds in various countries seek the Bank’s technical assistance in developing strategies for managing assets and liabilities and building institutional capacity.”

Departments within the World Bank

The World Bank is immensely complex.  This book openly admits that few people fully understand it.

“The bank has an extraordinary propensity for jargon and acronyms, which exacerbates the real and underlying complexity of both the issues at stake and its work.”

In addition, there’s so much infighting among the different groups struggling for power.

The following are the different branches of the World Bank:

1) Name: International Bank for Reconstruction and Development (IBRD)

Purpose: Lends to middle-income countries to support development and reconstruction

2) Name: International Development Association (IDA)

Purpose: Supports the development of the poorest countries through interest-free loans (credits) or grants

Some countries only borrow from IDA because they are not considered creditworthy for IBRD loans

3) Name: International Finance Corporation (IFC)

Purpose: Lends to and takes equity in private companies

4) Name: International Center for Settlement of Investment Disputes (ICSID)

Purpose: Consultation and arbitration of disputes between member countries

5) Name: Multilateral Investment Guarantee Agency (MIGA)

Purpose: Provides political risk insurance for foreign investments in developing countries

President

The President of the World Bank is typically an American, and the position wields a lot of power.

“The World Bank is very much a presidential institution with the president exercising substantial authority by mandate.”

This is surprising because the World Bank is supposed to support democracy, but the Third World countries this organization is designed to help have next to no say.  They literally get a lower vote amount.  Here’s a diagram of the power structure,

Two of the most influential presidents were Robert McNamara (US Secretary of Defense during the Vietnam War) and Paul Wolfowitz (US Deputy Secretary of Defense during the Iraq War).  

Robert McNamara greatly raised funding and turned the organization toward socialism. Paul Wolfowitz took the World Bank in sharp directions without consulting the rest of the group, such as an African corruption purge.  Then his presidency was marred by corruption/bribery as he gave his partner Shaha Riza promotional money.

Corruption

The World Bank has had significant problems with corruption.  There were a few internal watchdogs, whose effectiveness has been criticized.  One such group is the Independent Evaluation Group (IEG) unit within World Bank reporting directly to the Board of Executives.  The other is the Operations Evaluation Department which goes over the success of these projects.  This book doesn’t go too much into the rampant corruption within the Bank.  However, it does discuss the imperialistic aspect.

Imperialism

This book titles it the “Imperial Critique” which is that the World Bank is a “blunt instrument of US hegemony” and abuses and exploits poverty for power and wealth. 

“Without question, this system gives wealthier countries far more power than poor countries the World Bank aims to serve.”

The main issues were poorly addressed in this book, which is not that the Third World doesn’t get to vote enough; the problem is the debt doesn’t help the actual people of the country and perpetually grows larger to the benefit of Western commercial interests.  (See my previous article).

Environmental Criticism

This book vaguely mentions the environmental effects of the World Bank.  Numerous environmental group have protested against the Bank for its actions in India’s mammoth Narmada Dam and Amazon region of Brazil.  Many were deeply offended that the World Bank would cause massive environmental and water flooding and damage in India, as well as cutting down the rainforest in Brazil.  Only because the people who were flooded complained did the Bank (theoretically) alter its policy.

Program Plan

This book gives a hypothetical example of an imaginary country that goes through the World Bank plan successfully and achieves the goal of utopian poverty reduction.  The author had to use a fictitious example because no real country actually fit her model.

The World Bank’s model is to form a partnership, agree on needs, fund them, and then help development.  However, the book even bluntly admits that it rarely goes according to plan and complications arise.

” The bank clearly understands the need for nations to “own” and lead their development, and this is an oft-stated priority.  However, pressures from donors and development fads constantly challenge this resolve, and there are too many cases where programs are poorly adapted to the realities of individual countries.”

Then after they complete the program, they “graduate.”   Examples of graduates include Ireland, Greece, and the Czech Republic, Singapore, and South Korea.  Once they graduate, countries are considered too rich to borrow from the World Bank because their per capita income is above $6k.  Sometimes countries slip back and then “degraduate.” De-graduates include Venezuela in 1989 and South Korea in 1997.

Conclusion

I originally read this book with the intention of hearing the official version of why the World Bank is so great.  I was surprised to find the book openly admitting to the vast amount of complications and problems that these utopian programs inevitably create.  However, the author does portray the World Bank as a legitimate entity, meaning the problems are accidental mishaps.  This is a sharp contrast to other books analyzed in my series who document how the World Bank purposefully and knowingly exploited the Third World countries, hoping Westerners will find the Bank too complex to understand.