The World Bank: Lending In Whose Interest?

Good critical factsheet on the World Bank 
 
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The World Bank: Lending In Whose Interest?

The World Bank is one of the most powerful financial institutions in the
world. Founded in 1944, the Bank's initial mandate was to provide loans to
support European reconstruction following World War II. Since its early
days, however, the World Bank's purview and power has expanded dramatically,
and it is now active in more than 100 countries.

The World Bank Group is comprised of five branches: the International Bank
for Reconstruction and Development (IBRD), the International Development
Association (IDA), the International Finance Corporation (IFC), the
Multilateral Insurance Guarantee Agency (MIGA), and the International Center
for the Settlement of Investment Disputes (ICSID). The IBRD, the Bank's
largest branch, provides loans to developing countries at near-market rates
and raises nearly all of its funds by issuing bonds on the private financial
market. The IDA provides loans to the poorest nations at concessional rates,
and it is funded by contributions from the U.S. and other rich country
governments. The IFC and MIGA provide loans directly to the private sector
in developing countries and for political risk insurance, respectively,
while ICSID mediates disputes between investors and governments.

Power and Governance


The World Bank is comprised of 184 member governments. In practice, however,
rich country governments dominate the institution. The United States is the
largest shareholder of the World Bank and controls more than 15% of the
voting shares on the institution's Executive Board. As 85% approval is
required for major changes in Bank policy, the U.S. has veto power at the
institution. By comparison, all the countries of sub-Saharan Africa combined
control less than 7% of the vote.

The World Bank and its partner organization, the International Monetary Fund
(IMF), occupy a central place in the global economic system. If impoverished
countries do not agree to IMF/World Bank policy conditions - which almost
always include austerity measures and privatization - the IMF can
effectively cut the country's access to credit. Following an unwritten but
universally acknowledged agreement, the World Bank, regional development
banks, and even private creditors will generally not lend to countries
unless they have received a "seal of approval" from the IMF. This
arrangement gives the institutions tremendous leverage in impoverished
countries.

Debt

Another important way that the World Bank and IMF have influence over the
economies of impoverished nations is through international debt. For the
world's poorest nations, the IMF and World Bank are the largest creditors.
Because the institutions are "preferred creditors," countries must pay them
back before all other lenders. The external debt burden of sub-Saharan
Africa has increased by nearly 400% since 1980 to more than $200 billion
today. External debt per capita for sub-Saharan Africa (not including South
Africa) is $365, while GNP per capita is just $308.

Many nations have already paid their debts time and again. The debt crisis
set in when interest rates skyrocketed and compound interest made repayment
impossible. For example, Nigeria borrowed $5 billion from official and
private creditors, paid $16 billion to date, and still owes $32 billion!

The World Bank and IMF's Heavily Indebted Poor Countries (HIPC) Initiative
debt relief program has not provided sufficient relief to enough countries,
with only six countries graduating from the program as of January 2003, and
even these countries are still burdened by unsustainable levels of debt.
Moreover, many countries, including Zambia, Malawi, and Nicaragua, have been
denied additional relief because they have not undertaken policies of
privatization and liberalization fast enough. Many countries in Sub-Saharan
Africa still pay more to service their debts to the IMF and World Bank than
on their entire health budget. Meanwhile, the IMF and World Bank resist
calls from the Jubilee movement for 100% debt cancellation, despite the IMF'
s approximately $30 billion in gold reserves and the World Bank's $2 billion
profit in 2002.

Structural Adjustment and Policy Conditionality

In exchange for loans, the IMF and World Bank insist that countries
undertake economic reforms. Some of the policies countries undergoing
so-called "structural adjustment" must enact include:


  a.. User fees on health care and water, when these services were
previously free;
  b.. Privatization of state-run industries and basic services such as
electricity, water, health, and education;
  c.. Removing worker protections, large-scale layoffs, and privatizing
social insurance systems;
  d.. Opening markets to cheaper imports, decimating entire domestic
industries; and
  e.. Budget cuts, increased interest rates, and the restriction of credit
which is essential to the survival of many small business and farmers.
The World Bank and IMF have been promoting these policies for more than
twenty years. In the period since 1980, when the IMF/World Bank had the most
power over economic policy, income per person has fallen by 20% in Africa
and grew just 7% in Latin America. By contrast, during the previous era from
1960-1980, income per person increased by 34% in Africa and 73% in Latin
America. Structural adjustment has failed to promote economic growth in
these regions.

Moreover, non-governmental organizations that were part of a five-year,
eight-country review of structural adjustment policies called the Structural
Adjustment Participatory Review Initiative (SAPRI) concluded in 2002 that
these policies have exacerbated rather than reduced poverty and
environmental degradation. Despite the record of failure, the World Bank and
IMF continue to pursue these policies today.

In May 2001, a World Bank adjustment loan to Ghana required that water fees
be nearly doubled, and more fee hikes are planned as the system is readied
for privatization. The increases in costs have put clean water out of the
price range of the poor and have led to cholera outbreaks that have killed
hundreds, as people are forced to drink contaminated water.

The World Bank has now renamed its adjustment loans (now calling them
"Poverty Reduction Support Credits" and "Development Support Loans"). But
the content of the loans has shifted only slightly, with heavy emphasis
still placed on privatization, trade liberalization, and private sector
involvement. Short shrift is given to the environmental and social impacts
of this type of lending, which comprised a record 64% of all IBRD lending in
2002.

World Bank Projects and the Environment

The World Bank continues to lend for controversial and environmentally
harmful projects. The World Bank Group has provided $24 billion for fossil
fuel projects (oil, gas, and coal) since 1992, compared to just over $1
billion over the same period for renewables.. The non-profit advocacy group
Sustainable Energy and Economy Network has also shown that World Bank
financing of fossil fuels since 1992 has leveraged enough fossil fuel
production to generate almost double the amount of carbon dioxide that was
emitted globally in the year 2000, contributing significantly to global
warming.

In June 2000, the World Bank Group joined three of the world's largest oil
companies to finance the Chad-Cameroon Oil Pipeline in central Africa. The
$3.5 billion project is disrupting fragile ecosystems and putting the people
and wildlife that depend on them at risk.

Moreover, the World Bank has historically been the largest single source of
funds for large dam construction worldwide. Since its inception, the Bank
has provided almost $75 billion for 538 large dams in 92 countries which
have displaced more than 10 million people from their homes and land, caused
severe environmental damage, and pushed borrowers further into debt. Though
lending for large dams has decreased as a percentage of Bank lending in
recent years, the Bank proposed in 2002 to increase its support for "high
risk" water infrastructure projects such as dams.

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Sources for More Information

Cheru, Fantu. "Effects of structural adjustment policies on the full
employment of Human Rights," United Nations Economic and Social Council,
Commission on Human Rights, 24 February 1999.
www.unhchr.ch/huridocda/huridoca.nsf/Documents?OpenFrameset

Friends of the Earth, Environmental Defense, Sierra Club, International
Rivers Network, Rainforest Action Network, "Not in the Public Interest: The
World Bank's Environmental Record," 2001.
www.foe.org/res/pubs/pdf/wb.pdf

International Financial Institutions Advisory Committee (Meltzer
Commission), Final Report, March 2000.
www.house.gov/jec/imf/meltzer.htm

Mkandawire, Thandika and Charles C. Soludo, "Our Continent, Our Future:
African Perspectives on Structural Adjustment," Trenton, NJ: Africa World
Press, 1999.

Structural Adjustment Participatory Review Initiative Network (SAPRIN), "The
Policy Roots of Economic Crisis and Poverty: A Multi-Country Participatory
Assessment of Structural Adjustment," September 2002.
www.saprin.org/global_rpt.htm

Weisbrot, Mark, Robert Naiman, and Joyce Kim. "The Emperor Has No Growth:
Declining Economic Growth Rates in the Era of Globalization," Washington:
Center for Economic and Policy Research, September 2000.
www.cepr.net/IMF/The_Emperor_Has_No_Growth.htm

World Bank, www.worldbank.org

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Non-Governmental Organizations

50 Years is Enough Network: www.50years.org

A SEED Europe: www.aseed.net

Africa Action: www.africaaction.org

Bank Information Center: www.bicusa.org

Bretton Woods Project: www.brettonwoodsproject.org

Center for Economic Justice: www.econjustice.net

Center for Economic and Political Research for Community Action (Mexico):
www.ciepac.org

Center for Economic and Policy Research: www.cepr.net

Development Gap/SAPRIN: www.developmentgap.org

Focus on the Global South: www.focusweb.org

Friends of the Earth International: www.foei.org

Global Exchange: www.globalexchange.org

Halifax Initiative: www.halifaxinitiative.org

Insaaf International (India): www.geocities.com/insaafin/

Institute for Policy Studies/Sustainable Energy and Economy Network:
www.seen.org

Jubilee USA Network: www.jubileeusa.org

Jubilee South: www.jubileesouth.org

Third World Network: www.twnside.org.sg

World Bank Bonds Boycott: www.worldbankboycott.org