International Bank for Reconstruction and Development

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International Bank for
Reconstruction and Development
Formation1944
TypeDevelopment finance institution
Legal statusTreaty
PurposeDevelopment assistance, Poverty reduction
HeadquartersWashington, D.C., United States
Membership
188 countries
President of the World Bank
Jim Yong Kim
Parent organization
World Bank Group
Websiteworldbank.org/ibrd

The International Bank for Reconstruction and Development (IBRD) is an international financial institution which offers loans to middle-income developing countries. The IBRD is the first of five member institutions which compose the World Bank Group and is headquartered in Washington, D.C., United States. It was established in 1944 with the mission of financing the reconstruction of European nations devastated by World War II. Together, the International Bank for Reconstruction and Development and its concessional lending arm, the International Development Association, are collectively known as the World Bank as they share the same leadership and staff.[1][2][3] Following the reconstruction of Europe, the Bank's mandate expanded to advancing worldwide economic development and eradicating poverty. The IBRD provides commercial-grade or concessional financing to sovereign states to fund projects that seek to improve transportation and infrastructure, education, domestic policy, environmental consciousness, energy investments, healthcare, access to food and potable water, and access to improved sanitation.

The IBRD is owned and governed by its member states, but has its own executive leadership and staff which conduct its normal business operations. The Bank's member governments are shareholders which contribute paid-in capital and have the right to vote on its matters. In addition to contributions from its member nations, the IBRD acquires most of its capital by borrowing on international capital markets through bond issues. In 2011, it raised $29 billion USD in capital from bond issues made in 26 different currencies. The Bank offers a number of financial services and products, including flexible loans, grants, risk guarantees, financial derivatives, and catastrophic risk financing. It reported lending commitments of $26.7 billion made to 132 projects in 2011.

History

The International Bank for Reconstruction and Development (IBRD) and International Monetary Fund (IMF) were established by delegates at the Bretton Woods conference in 1944 and became operational in 1946.[4] The IBRD was established with the original mission of financing the reconstruction efforts of war-torn European nations following World War II, with goals shared by the later Marshall Plan. The Bank issued its inaugural loan of $250 million ($2.6 billion in 2012 dollars[5]) to France in 1947 to finance infrastructure projects. The institution also established its first field offices in Paris, France, Copenhagen, Denmark, and Prague in the former Czechoslovakia. Throughout the remainder of the 1940s and 1950s, the Bank financed projects seeking to dam rivers, generate electricity, and improve access to water and sanitation. It also invested in France, Belgium, and Luxembourg's steel industry. Following the reconstruction of Europe, the Bank's mandate has transitioned to eradicating poverty around the world. In 1960, the International Development Association (IDA) was established to serve as the Bank's concessional lending arm and provide low and no-cost finance and grants to the poorest of the developing countries as measured by gross national income per capita.[2][6]

The IBRD began investing in development projects such as the Japanese high-speed railway system in 1964. In 1971, the IBRD set up an agricultural scientific research partnership organization to promote research and technology in agriculture. Its initial investment in renewable energy commercialisation was made in 1973 when it financed the development of a geothermal power plant in El Salvador. That same year, the Bank approved an increase of 40% in agriculture financing. The Bank issued its first loan for environmental improvements to Finland in 1975 to finance investments in combating water pollution. In 1978, it began its annual World Development Report, which discusses growth prospects for developing countries.[6] Throughout the 1980s, the Bank donated funds to the World Food Programme, a branch of the United Nations which presently provides food aid to countries facing humanitarian crises. It began helping to implement the Montreal Protocol in 1989 which encourages the phasing out of certain substances which accelerate ozone depletion.[6]

In 1991, the IBRD declared that it will not fund commercial logging projects in tropical rainforests. That same year, the IBRD sponsored projects to improve market competitiveness and create jobs in South Africa, during the onset of the end of apartheid. In 1995 toward the end of the Yugoslav Wars, the IBRD began financing reconstruction projects in the former Yugoslavia. Under its Heavily Indebted Poor Countries initiative, the Bank relieved Uganda's debt in 1997. In 1998, the Bank launched a fraud and corruption hotline for any individual to report an abuse of Bank funds by projects or individuals.[6]

The Bank set up a Prototype Carbon Fund in 2000 to promote technology transfer to developing countries for addressing climate change. The IBRD became a member of the Global Alliance for Vaccines and Immunization to combat premature deaths among children. In 2005, the Bank issued the first loan to Iraq in 30 years to support education and the restoration of schools.[6] The Bank faced increasing competition in Latin America from private capital markets, where the IBRD held $36.3 billion in loans in fiscal year 2006, due to mixed views on the stipulations of environmental protection and protection against the uprooting of indigenous populations attached to the Bank's lending.[7]

In response to the 2007–2008 world food price crisis, the IBRD initiated a Global Food Crisis Response Program which provided food assistance to 40 million people across 44 countries As of 2011. The IBRD's lending accelerated and expanded in 2009 in response to the global financial crisis, committing approximately $60 billion USD to support developing countries, which was 54% more than it had committed in 2008. The Bank's education lending reached a historical high of approximately $5 billion USD in 2010.[6] In 2010, the Bank opened all of its data to the public, primarily via the establishment of its data.worldbank.org website. By April 2011, approximately 100,000 visitors per week accessed its data and the Bank awarded prizes to people who had participated in the first competition to use the data to develop mobile apps.[8] That same year, the IBRD loaned $200 million from its own accounts and $97 million from its Clean Technology Fund to a solar power plant project in Morocco.[9]

Governance

The IBRD is governed by the World Bank's Board of Governors which meets annually and consists of one governor per member country (most often the country's finance minister or treasury secretary). The Board of Governors delegates most of its authority over daily matters such as lending and operations to the Board of Directors. The Board of Directors consists of 25 executive directors and is chaired by the President of the World Bank Group. The executive directors collectively represent all 187 member states of the World Bank. The president oversees the IBRD's overall direction and daily operations.[1][10] As of July 2012, Jim Yong Kim serves as the President of the World Bank Group.[11] The Bank and IDA operate with a staff of approximately 10,000 employees.[12]

Membership

International Bank for Reconstruction and Development member states

The IBRD is owned by 188 member countries which pay in capital, vote on matters of policy, and approve all of its activities. Each member state is a shareholder and the percentage of ownership share is determined by the size of its economy and the amount of capital contributed to support the Bank's borrowing activities among international capital markets. High-income member nations together hold a share of 65.92%. As of 2011, the United States is the IBRD's single largest shareholder with a share of 16.03%. Japan and Germany hold shares of 9.59% and 4.39% respectively, while each of France and the United Kingdom hold a share of 4.21%. The United States possesses exclusively the power to veto changes to the structure of the Bank.[1][13] The IBRD's share capital amounted to approximately $190 billion in 2011.[14] Membership in the IBRD is available only to countries who are members of the International Monetary Fund.[1]

From 1970 to 2011, 25 borrowing countries graduated from their eligibility for IBRD lending, although six of these countries have relapsed as borrowers after not sustaining their graduate status.[15] The IBRD program imposes a threshold based on gross national income per capita when determining a member state's eligibility to borrow. Member states maintain their eligibility to borrow from the IBRD until they can sustain long-term development without dependence on the Bank's concessional financing. To graduate, a country must demonstrate good institutional capacity and expands its own access to foreign capital markets such that it can sustain and finance its own development.[15]

Countries graduated from IBRD lending

The following countries have graduated from their eligibility for IBRD lending. The dates mark the fiscal year at which the IBRD begins recognizing the given nation's status.[16]

Countries relapsed to IBRD lending

The following countries relapsed to their eligibility for IBRD lending. The dates mark the fiscal year at which the IBRD begins recognizing the given nation's status.[16]

Funding

Although members contribute capital to the IBRD, the Bank acquires funds primarily by borrowing on international capital markets by issuing bonds. The Bank raised $29 billion USD worth of capital in 2011 from bonds issued in 26 different currencies.[17] The IBRD has enjoyed a triple-A credit rating since 1959, which allows it to borrow capital at favorable rates.[18] It offers benchmark and global benchmark bonds, bonds denominated in non-hard currencies, structured notes with custom-tailored yields and currencies, discount notes in U.S. dollars and eurodollars.[19] In 2011, the IBRD sought an additional $86 billion USD (of which $5.1 billion would be paid-in capital) as part of a general capital increase to increase its lending capacity to middle-income countries.[14] The IBRD expressed in February 2012 its intent to sell kangaroo bonds (bonds denominated in Australian dollars issued by external firms) with maturities lasting until 2017 and 2022.[20]

Services

IBRD loans and IDA credits in 2005

The IBRD provides financial services as well as strategic coordination and information services to its borrowing member countries.[21] The Bank only finances sovereign governments directly, or projects backed by sovereign governments.[22] The World Bank Treasury is the division of the IBRD that manages the Bank's debt portfolio of over $100 billion and financial derivatives transactions of $20 billion.[23]

The Bank offers flexible loans with maturities as long as 30 years and custom-tailored repayment scheduling. The IBRD also offers loans in local currencies. Through a joint effort between the IBRD and the International Finance Corporation, the Bank offers financing to subnational entities either with or without sovereign guarantees. For borrowers needing quick financing for an unexpected change, the IBRD operates a Deferred Drawdown Option which serves as a line of credit with features similar to the Bank's flexible loan program.[24] Among the World Bank Group's credit enhancement and guarantee products, the IBRD offers policy-based guarantees to cover countries' sovereign default risk, partial credit guarantees to cover the credit risk of a sovereign government or subnational entity, and partial risk guarantees to private projects to cover a government's failure to meet its contractual obligations. The IBRD's Enclave Partial Risk Guarantee to cover private projects in member countries of the IDA against sovereign governments' failures to fulfill contractual obligations.[25] The Bank provides an array of financial risk management products including foreign exchange swaps, currency conversions, interest rate swaps, interest rate caps and floors, and commodity swaps.[26] To help borrowers protect against catastrophes and other special risks, the bank offers a Catastrophe Deferred Drawdown Option to provide financing after a natural disaster or declared state of emergency. It also issues catastrophe bonds which transfer catastrophic risks from borrowers to investors.[27] The IBRD reported $26.7 billion in lending commitments for 132 projects in fiscal year 2011, significantly less than its $44.2 billion in commitments during fiscal year 2010.[17]

See also

References

  1. ^ a b c d Ottenhoff, Jenny (2011). World Bank (Report). Center for Global Development. Retrieved 2012-06-05.
  2. ^ a b World Bank. "History". World Bank Group. Retrieved 2012-07-17.
  3. ^ International Bank for Reconstruction and Development. "Background". World Bank Group. Retrieved 2012-07-17.
  4. ^ Proceedings and Documents of the United Nations Monetary and Financial Conference. United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1–22, 1944. Washington, D.C.: U.S. Department of State. 1948. Retrieved 2012-07-17.
  5. ^ "CPI Inflation Calculator". U.S. Bureau of Labor Statistics. Retrieved 2012-06-20.
  6. ^ a b c d e f World Bank. "Interactive Timeline". World Bank Group. Retrieved 2012-07-21.
  7. ^ "Fading brands: Development bankers face growing competition". The Economist. 2007-05-10. Retrieved 2012-07-17.
  8. ^ World Bank. "Open Data Opens Bank". World Bank Group. Retrieved 2012-07-21.
  9. ^ Goossens, Ehren (2011-11-17). "World Bank To Loan $297 Million For Morocco Solar Power Plant". Bloomberg. Retrieved 2012-07-17.
  10. ^ International Bank for Reconstruction and Development. "Leadership". World Bank Group. Retrieved 2012-07-17.
  11. ^ Samarasekera, Udani (2012). "Jim Kim takes the helm at the World Bank". The Lancet. 380 (9836): 15–17. Retrieved 2012-08-02.
  12. ^ "World Bank (IBRD & IDA) Structure". Bank Information Center. Retrieved 2012-07-01.
  13. ^ World Bank Group. "Member Countries". World Bank Group. Retrieved 2012-07-14.
  14. ^ a b Moss, Todd; Staats, Sarah Jane; Barmeier, Julia (2011). The ABCs of the General Capital Increase (Report). Center for Global Development. Retrieved 2012-06-05.
  15. ^ a b Heckelman, Jac C.; Knack, Stephen; Rogers, F. Halsey (2011). Crossing the Threshold: An Analysis of IBRD Graduation Policy (PDF) (Report). The World Bank Development Research Group. Retrieved 2012-07-20.
  16. ^ a b World Bank (2012). World Bank Operational Lending Category Changes (Report). World Bank Group. Retrieved 2012-07-17.
  17. ^ a b World Bank (2011). The World Bank Annual Report 2011: Year in Review (PDF) (Report). World Bank Group. Retrieved 2012-07-20.
  18. ^ International Bank for Reconstruction and Development. "How IBRD is Financed". World Bank Group. Retrieved 2012-07-17.
  19. ^ International Bank for Reconstruction and Development. "World Bank Debt Products". World Bank Group. Retrieved 2012-07-17.
  20. ^ McDonald, Sarah (2012-02-26). "World Bank's IBRD Unit Is Seeking To Sell Its First Kangaroo Bonds In Year". Bloomberg. Retrieved 2012-07-17.
  21. ^ International Bank for Reconstruction and Development. "Products and Services". World Bank Group. Retrieved 2012-07-17.
  22. ^ "World Bank (IBRD & IDA) Lending". Bank Information Center. Retrieved 2012-07-01.
  23. ^ International Bank for Reconstruction and Development. "How IBRD is Financed". World Bank Group. Retrieved 2012-07-17.
  24. ^ International Bank for Reconstruction and Development. "Financing". World Bank Group. Retrieved 2012-07-17.
  25. ^ World Bank (2012). World Bank Group Guarantee Products (PDF) (Report). World Bank Group. Retrieved 2012-07-22.
  26. ^ International Bank for Reconstruction and Development. "Hedging Products". World Bank Group. Retrieved 2012-07-17.
  27. ^ International Bank for Reconstruction and Development. "Hedging Products". World Bank Group. Retrieved 2012-07-17.

External links

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