Professional Documents
Culture Documents
World Bank & Its Impact On International Trade
World Bank & Its Impact On International Trade
Decision Taking
By
World Bank
Observation from the trade
point of view
1
“Impact Assessment on decision
taking by world bank: observation
from the trade point of view”
Submitted to
Md. Thoufiqul Islam
Assistant Professor
Department of Management Studies
University of Dhaka
Submitted by
Name ID
Sharmin Aktar 116
Mazharul Islam 126
Bappy Sharker 142
Mintu Kumar Debnath 155
Tahmina Binte Rahman 165
2
Department of Management Studies
University of Dhaka
All praises are due to the Almighty Allah without whose kind blessings, it
would not be possible to complete the Term paper. In the process of
preparing the Term paper, I received valuable inputs, guidance, assistance
and instructions from a number of respected persons. I would like to express
my gratitude and sincere thanks to those persons for their immense help and
enormous cooperation.
3
LETTER OF TRANSMITTAL
To
Mohammad Thoufiqul Islam
Assistant Professor
Department of Management Studies
University of Dhaka.
Dear Sir,
So, we therefore hope that, the Term paper covers the entire requirement
you needed and you will find it in proper order.
Sincerely,
Bappy Sharker
4
(On behalf of my group members)
Table of Contents
Contents Page
No
Abstract
Introduction
Objectives
Methodology
Findings
The World Bank
World Bank Group Institutions
Member Countries’ Decision Making
Some Recent World Bank Projects
World Bank Fiscal Year Highlights 2009
World Bank Group Assistance
COLLABORATING TO RESPOND TO THE GLOBAL
FINANCIAL
The CRISIS
World Bank Group Institutions Summary
Millennium Development Goals
2005-2009
SPURRING TRADE AND DEVELOPING THE
FINANCIAL
Financial AND
and PRIVATE
Private SECTORS
Sector Development
World Bank: Action in the field
Discussion
The Bank in the 21st Century
Programs of the World Bank
Why World Bank Programs Fail
Development without World Bank
CONCLUSION
References
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Abstract
This paper analyses the impact of World Bank on the international trade. The
World Bank is a vital source of financial and technical assistance to
developing countries around the world. The World Bank was originally
established to support reconstruction in Europe after World War II, but has
since reframed its mission and expanded its operations both geographically
and substantively. Today, the Bank's mission is to reduce poverty. It has
185 member countries and provides over $24 billion annually for activities
ranging from agriculture to trade policy, from health and education to energy
and mining. The World Bank provides funding for bricks-and-mortar projects,
as well to promote economic and policy prescriptions it believes will promote
economic growth.
Since inception in 1944, the World Bank has expanded from a single
institution to a closely associated group of five development institutions. At
any given moment in locations around the globe, people are engaged in
development projects designed to improve living standards and reduce
poverty. Last year, the World Bank provided $46.9 billion for 303 projects in
developing countries worldwide, with our financial and/or technical expertise
aimed at helping those countries reduce poverty. The Bank is currently
involved in more than 1,800 projects in virtually every sector and developing
country. The projects are as diverse as providing microcredit in Bosnia and
Herzegovina, raising AIDS-prevention awareness in Guinea, supporting
education of girls in Bangladesh, improving health care delivery in Mexico,
and helping East Timor rebuild upon independence and India rebuild Gujarat
after a devastating earthquake.
The Bank has been actively supporting Trade Facilitation. The Bank has
considerably stepped up its analytical and lending activities to promote trade
integration. Given its development focus, the World Bank has developed a
cross-cutting approach to Trade Facilitation in order to effectively address
the bottlenecks and inefficiencies of developing countries’ supply chains. The
Bank supports its constituencies’ efforts of Trade Facilitation reforms through
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worldwide initiatives, and by helping to mainstream Trade Facilitation at the
country or regional levels. In order to build constituencies for Trade
Facilitation, the Bank is working closely with other organizations such as the
IMF, WTO, UNCTAD, WCO, and UNECE to disseminate knowledge and help
policy makers and stakeholders from developing countries to better
understand the stakes and the roadmap to trade facilitating reforms. The
World Bank is also responding to an increasing demand for more analytical
work and project lending related to Trade Facilitation.
With respect to the Bank, we find that the number of projects has a positive
impact on overall economic freedom, while the effect of the amount of World
Bank credits appears to be negative.
Keywords
1. Incorporation of World Bank
2. Total loan disbursement in 2009
3. World bank in poverty alleviation
4. World Bank in structural development
5. Trade facilitation by world Bank
Introduction
In the past time, trades between two countries were not possible. But now-a-
days, it’s possible for the blessings of globalization. Trade, now conducted
not within a country but with a great diversification, large periphery. It is not
confined in a country or a group of countries. Various types of organization in
the world working for smooth flow of international trade. World Bank is one
of them. In international trade, these organizations have immense
contribution. Various decisions or steps these organizations take which have
great impact on international trade or international finance. One effective
decision or steps can change the future of a country.
World Bank is an important decision maker for international trade regarding
developing and under-developed countries. Its main objectives are economic
and social development and to reduce the poverty to lend the money to
developing or poor countries. World Bank is a development institution whose
goal is to reduce poverty by promoting sustainable economic growth in its
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client countries. Development is a long-term process which ultimately
involves the transformation of whole societies. It is about getting economic
and financial policies right. But it is also about empowering the people,
building the roads, writing the laws, recognizing the women, educating the
girls, eliminating the corruption, protecting the environment, inoculating the
children - and much, more. The main reason to prepare this paper is to
analyze the impact of decision making of World Bank in international
business.
Literature Review
Axel Dreher (2002). The Development and Implementation of IMF and World
Bank Conditionality. HWWA. ISSN 1616-4814.
William Easterly (2001). The Elusive Quest for Growth. MIT Press. ISBN 0-262-
55042-3.
Catherine Caufield (1997). Masters of Illusion. Henry Holt & Company, New York.
ISBN 0-8050-2875-7 (hardcover) ISBN 0-330-35321-7 (paperback, 1998).
Bruce Rich (1994). Mortgaging the Earth. Beacon Press. ISBN 0-8070-4704-X
(hardcover), ISBN 0-8070-4707-4 (paperback).
Walden Bello, et al. (1999). Dark Victory. Pluto Press. ISBN 0-7453-1466-X
(hardcover) ISBN 0-935028-61-7 (paperback).
Paul McClure (editor) (2003). A Guide to the World Bank. World Bank
Publications. ISBN 0-8213-5344-6.
Elizabeth P. McLellan (editor) (2003). The World Bank: Overview and Current
Issues. Nova Science Publishers. ISBN 1-59033-550-3.
Phillipe Le Prestre (1989). The World Bank and the Environmental Challenge.
Susquehanna University Press. ISBN 0-941664-98-8.
Ansel Webb (1994). The World Bank Is Closed. NCSU Term Paper. ISBN none.
8
Sebastian Mallaby (2004). The World's Banker: a story of failed states, financial
crises, and the wealth and poverty of nations. Penguin Press HC. ISBN 1-59420-023-
8.
Zoe Young (2002). A New Green Order? The World Bank and the Politics of the
Global Environment Facility. Pluto Press. ISBN 0-7453-1553-4.
John Perkins (2004). Confessions of an Economic Hit Man. Ebury Press. ISBN 0-
452-28708-1.
Objectives
The main objective of the paper is to comprehensive study on World Bank
and to find out the impact of its decision taking. We also tried to find out to
what extent it is successful to achieve its goals. The prime objectives of this
report are as follows:
Methodology
This report is totally based on secondary data. World Bank has a resourceful
website. On the other hand every year World Bank published different kinds
of report like the World Bank report, world human development report etc.
We took helps from different books. As our required information from
secondary data were available so we did not sought for any primary data.
First of all we tried to analyze the different programmes taken by World Bank
for poverty reduction and economic development. Then we tried to find out
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the out comes of such kind of programmes. The pie chart are used for data
analysis.
Data collection:
The secondary sources of data we used to prepare this report are given
below:
1. World bank website
2. Different publications about world bank
3. Book: The world bank since Bretton woods by Edward S. Mason &
Robert E. Asher
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The World Bank
Created at the Bretton Woods
Conference in 1944, The World
Bank Group is comprised of five
agencies that make loans or
guarantee credit to its 177 member countries. In addition to financing
projects such as roads, power plants and schools, the Bank also makes loans
to restructure a country's economic system by funding structural adjustment
programs (SAPs). The Bank manages a loan portfolio totaling US$200 billion
and last year loaned a record US$28.9 billion to over 80 countries.
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• Interest rates must be related to borrowing costs; the same rate applies
to all borrowers for all loans granted at any given time, regardless of
creditworthiness.
• Supervision is required by the Articles and thus the Bank ensures that
the loans are used only for the purposes for which they were intended.
Expansion – 1950s
During the 1950s, the Bank expanded considerably and its lending began to
support the foundation of institutions within countries for development
purposes. It was during this decade that the Bank’s present focus on
development first became apparent, as further development agencies were
set up under the Bank’s umbrella as affiliates. These include the
International Financial Corporation (IFC), the International Development
Association (IDA) and the Economic Development Institute (EDI). The IBRD
remains the largest agency within the World Bank Group and its earnings
now help to fund the others.
12
Despite this policy shift, the Bank does not see itself as a charity. Its
response to the deteriorating outlook for developing countries arising out of
the global financial crises of the 1970s was to innovate a new lending
approach known as Structural Adjustment Programmes. In exchange for
funding, governments agreed to stabilize their nations’ economies by
adopting the prescriptive policies laid down by the Bank such as reducing
government spending, lowering inflated exchange rates and encouraging
free trade by reducing tariff barriers and subsidies. Such policies also
promoted privatization and ‘market’ rather than ‘command’ economies.
There were claims that this contravened the Bank’s overarching ban on
political considerations (as mentioned above), but the Bank contended that
these were valid factors that have to be taken into account when making a
decision about investment or wider involvement.
Today, the IBRD is funded mainly by the issuance of World Bank bonds in the
international markets. Because of its borrower AAA rating, the Bank can
raise funds cheaply and, as a not-for-profit organization, it passes these
‘savings’ onto its borrowers, as well as to the IDA. In the fiscal year 2009,
World Bank lending amounted to over $30 billion.
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The IDA has 166 members, 82 of whom are the world’s poorest countries,
and as the world's largest source of interest-free loans and grant assistance
to such countries, helps countries to achieve the Millennium Development
Goals. The loans are typically repayable within 30-40 years, with a 10-year
initial grace period before any payment is due at all. The IDA loans money on
concessional terms (known as credits) to countries that are unable to borrow
from the IBRD or commercial markets. IDA also spends around 20 per cent of
its funds on grants to countries at risk of debt distress. Since its inception,
IDA credits and grants have totaled US$182 billion, averaging US$10 billion a
year in recent years and directing the largest share, about 50%, to Africa.
The IDA accounts for nearly 40% of the Bank’s total lending.
Countries that borrow from the IBRD have more time to repay the money
than if they borrowed from a commercial bank. Unlike commercial banks, the
IBRD is driven by development impact rather than profit maximization. The
IBRD has also supported middle-income countries in times of crisis when
their access to capital has dried up.
The IBRD provides its members with financial products, knowledge and
technical services and strategic advice, while using its capacity to call
members together to discuss ways to further their specific development
objectives. It works closely with the IFC, MIGA, the IMF and other multilateral
development banks; and collaborates with foundations, civil society partners
and donors.
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The IFC was set up in 1956 and has 179 member countries. It is the private
sector arm of the World Bank Group and is legally and financially
independent of the rest of the Group. The IFC promotes growth in the
developing world by financing private sector investment and providing
technical support and advice to government and business. In partnership
with private sector investors, the IFC provides loans and equity finance for
business ventures in developing countries, advisory assistance, (primarily to
governments) on private sector participation in infrastructure and other
public services, and the restructuring of state-owned enterprises.
The IFC may provide finance for a company with some government
ownership, provided there is private sector participation and the venture is
run on a commercial basis. The IFC does not lend directly to micro, small,
and medium enterprises or individual entrepreneurs and does not accept
government guarantees for its financing, (although its work often requires
close cooperation with government agencies in developing countries). The
IFC seeks partners for joint ventures and raises additional financing by
encouraging other institutions to invest in IFC projects.
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International Centre for the Settlement of
Investment Disputes (ICSID)
ICSID is an autonomous international institution established under the
Convention on the Settlement of Investment Disputes between States and
Nationals of Other States (the ICSID Convention or the Washington
Convention), with the primary purpose of providing facilities for conciliation
and arbitration of international investment disputes. ICSID is an impartial
forum assisting the resolution of legal disputes between eligible parties,
through conciliation or arbitration procedures. Recourse to ICSID conciliation
and arbitration is entirely voluntary. However, once the parties have
consented to arbitration under the ICSID Convention, neither can unilaterally
withdraw its consent. Moreover, all ICSID contracting states, whether or not
parties to the dispute, are required by the Convention to recognize and
enforce ICSID arbitral awards.
Voting
The World Bank and the IMF have adopted a weighted system of voting. A
quota is assigned by the IMF on the basis of the size of its economy
(equivalent to the country's subscription to the Fund) and this determines its
voting power and the number of shares allotted to each new member
country of the Bank. Each new member country of the World Bank is allotted
250 votes plus one additional vote for each share it holds in the World Bank's
capital stock.
Board of Governors
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The Executive Directors representing the 185 member countries are
responsible for the day-to-day conduct of the general operations of the Bank
and exercise all the powers delegated to them by the Board of Governors.
The Executive Directors consider and decide on IBRD loans, IDA credits and
grants, IFC investments, MIGA guarantees, and they determine policy issues
that guide the general operations of the Bank. In addition, the Executive
Directors are also responsible for annually presenting the audited accounts/
administrative budget and the annual reports on the Bank's operations and
policies to the Board of Governors.
17
Country/Project name Total Cost
Bangladesh
Food Crisis Development Support Development Policy $130 million.
Credit
Pakistan
Poverty Reduction and Economic Support $500 million.
Development Policy Credit
18
Country/project name Total Cost
Africa
Central Africa 3A – CEMAC Regional Institutions $81.6
Support Specific Investment Credit/Grant million.
West and Central Africa Air Transport Phase II – B $18 million.
Adaptable Program Credit/Grant
Indonesia
Second Infrastructure Development Policy Loan $200
million.
Vietnam
Agriculture Competitiveness Specific Investment $75 million
Credit
20
Summaries of Operations Approved during Fiscal 2009,
Europe and Central Asia
Armenia
Lifeline Roads Improvement (LRIP) Emergency $30.4
Recovery Credit million.
Bulgaria
Social Inclusion (SIP) Specific Investment Loan €136.7
million.
Brazil
Second Provincial Agricultural Development Specific $59.4
Investment Loan million.
Mexico
Mexico Information Technology (IT) Industry $80 million.
Development Specific Investment Loan
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Amman Solid Waste Management Specific Investment $40.5
Loan million.
Egypt
Ain Sokhna Power Specific Investment Loan $2.1 billion.
Tunisia
Integration and Competitiveness Development Policy $250
Loan million.
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The passing of the Millennium Development Goals midpoint is a strong
reminder that the international community must remain focused on meeting
the basic needs of the world’s impoverished peoples. For the Bank Group,
this means providing funding and technical assistance as well as redoubling
efforts to improve service delivery and help countries strengthen
investments in recovery and development projects.
The global economic crisis heightens the need for action. To prevent it from
wiping out decades of developmental progress, the Bank Group has
increased efforts to protect the most vulnerable in the poorest countries,
maintain long-term infrastructure investment programs, and sustain private
sector–led economic growth and employment creation. It is also ramping up
work to help governments strengthen their health systems, promoting
innovative community based practices to deal with global challenges such as
HIV/AIDS and malaria.
Established 1944
Members 186
*Reported in IBRD’s financial statements as “income before fair value adjustment on non-trading portfolios, net and Board of Governors–
approved transfers.”
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The International Development Association (IDA) provides interest-
free, long-term loans—called credits—and grants to governments of the
world’s 82 poorest countries, which have little or no capacity to borrow on
market terms. IDA’s lending is financed by contributions to IDA from donor
countries, IBRD’s net income transfers, grants from IFC, and IDA’s credit
reflows.
Established 1960
Members 169
*Up to the fiscal year ended June 30, 2007, IDA prepared special-purpose financial statements. Effective July 1, 2007, IDA’s financial
statements are prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP).
27
The International Finance Corporation (IFC) provides long-term loans,
equity, structured and securitized products, and advisory and risk mitigation
services to private enterprises in developing and transition countries, helping
reduce poverty and improve people’s lives. IFC seeks to reach businesses in
regions and countries with limited access to capital and markets that are
considered too risky by commercial investors in the absence of IFC
participation. IFC provides services without accepting government
guarantees.
Established 1956
Members 182
Millions of Dollars
28
assets net
of
associated
derivatives
*Reported in IFC’s financial statements as “(loss) income before net gains (losses) on other nontrading financial
instruments accounted for at fair value and grants to IDA.”
Established 1988
Members 174
Millions of Dollars
Operating 24 17 49 55 51
29
income
*Operating capital includes paid-in capital, retained earnings, and the insurance portfolio reserve net of corresponding reinsurance
recoverable.
Established 1966
Members 143
30
The millennium Development Goals are a challenge the global community
has set for itself. They are a challenge to poor countries to demonstrate good
governance and a commitment to poverty reduction. And they are a
challenge to wealthy countries to make good on their promise to support
economic and social development. The Millennium Development Goals have
captured the world’s attention, in part because they can be measured.
Since 1990 the countries of the world have called for all children to be able
to complete primary school, but more than 75 million children of primary
school age remain out of school, most of them in South Asia and Sub-
Saharan Africa, and the majority of them are girls. To reach the Millennium
Development Goals by 2015, school systems with low completion rates will
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need to start now to train teachers, build classrooms, and improve the
quality of education. They will also have to remove barriers to attendance,
such as fees and lack of transportation, and address parents concern for the
safety of their children.
Three regions lag behind in providing girls full access to primary and
secondary school: South Asia, Sub-Saharan Africa, and the Middle East and
North Africa. But countries with the widest gender gaps have made progress
and renewed efforts to get all children into school will create more
opportunities for girls. That is not all that is needed. Empowering women
means having an equal voice in all decisions which affect their lives: in the
family, in the marketplace, and in government.
Death in childbirth is a rate rare event in rich countries, where there are
typically fewer than 15 maternal deaths or every 100,000 live births. But in
the poorest countries of Africa and Asia the rate may be 100 times higher.
And because women in poor countries have more children, their lifetime risk
of maternal death may by more than 200 times greater than that for women
in rich countries, there is some evidence of progress. More women have
access to reproductive health services, and in many places births are more
likely to be attended by trained health staff.
6. Combating disease
Epidemic diseases exact a huge toll in human suffering and lost
opportunities for development. Poverty, armed conflict, and natural disasters
contribute to the spread of disease and are made worse by it. HIV,
tuberculosis, and malaria are among the world’s biggest killers. Effective
prevention and treatment programs will save lives. Reduce poverty and help
economies develop.
There are 300-500 million cases of malaria each year, leading to more than 1
million deaths. Most cases occur in Sub-Saharan Africa and most deaths from
malaria are among children younger than five years old.
Tuberculosis kills some 2 million people a year, most of them 15-45 years
old. The disease is spreading more rapidly because of the emergence of
drug-resistant strains of tuberculosis; the spread of HIV, which reduces
resistance; and the growing number of refugees and displaced people.
Economies need to grow to provide jobs and incomes for poor people. Health
and education systems must deliver services to everyone: men and women,
rich and poor. Infrastructure has to work and be accessible to all. And
policies need to empower people to participate in the development process.
While success depends on the actions of developing countries, which must
direct their own development, there is also much that rich countries must do
to help. This is what Goal 8 is for – it complements the first seven. Official
development assistance to developing countries reached $ 105.1 billion in
2007.
Trade
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predictably. The facility is designed to finance activities that will make
immediate and direct improvements in trade facilitation systems by
modernizing infrastructure, institutions, policies, and regulations. Reducing
trade costs represents a significant opportunity for countries to realize their
economic development and poverty-reduction goals during this time of
economic crisis. Surveys of exporters, importers, and local banks involved
with trade finance in 14 developing countries reveal that the cost of trade
finance has increased markedly and the supply of export finance has
contracted. The World Bank has put in place operational programs with a
trade finance component in the amount of $4 billion through the IFC Global
Trade Finance Program (GTFP) and the Global Trade Liquidity Program
(GTLP). Together with its official and private partners, the GTLP is expected
to contribute up to $50 billion in short-term trade finance over a three-year
period.
35
diagnostic in understanding the vulnerabilities and developmental challenges
of financial systems. The Bank has engaged in FSAPs and FSAP updates in
more than 120 countries over the past 10 years, contributing to the
analytical underpinnings of financial sector reforms and some of the recent
crisis-related loans to governments. In more than 50 countries, the Bank is
helping to enhance the stability of and promote access to basic payment
services. Jointly with IFC, the Bank is promoting credit bureau development
in more than 50 countries, and has helped establish or improve 13 bureaus
supporting approximately $19 billion in financing and working on secured
transaction and collateral registry projects in nine countries. Such a project
in China, completed in June 2009, supported more than $350 billion in
receivables financing. The Bank’s Remittance Prices worldwide Database
contains detailed information on the cost of sending remittances in 134
bilateral corridors. These data are intended to increase transparency in the
market for remittances, which combined with adequate consumer protection,
help foster a competitive and safe market for remittances, and are an
important factor in the reduction of costs.
36
World Bank: Action in the field
AFRICA
New Commitments Disbursements
IBRD $362 million IBRD $120 million
37
EAST ASIA AND PACIFIC
New Commitments Disbursements
38
IBRD $6,905 million IBRD $3,275 million
39
South Asia
New Commitments Disbursements
IBRD $1,286 million IBRD $1,202 million
40
41
EUROPE AND CENTRAL ASIA
New Commitments Disbursements
IBRD $8,978 million IBRD $4,887 million
42
43
LATIN AMERICA AND THE CARIBBEAN
New Commitments Disbursements
IBRD $13,829 million IBRD $7,864 million
44
MIDDLE EAST AND NORTH AFRICA
45
New Commitments Disbursements
IBRD $1,551 million IBRD $1,216 million
46
47
The World Bank is a development institution whose goal is to reduce poverty
by promoting sustainable economic growth in its client countries.
Development is a long-term process which ultimately involves the
48
transformation of whole societies. It is about getting economic and financial
policies right. But it is also about empowering the people, building the roads,
writing the laws, recognizing the women, educating the girls, eliminating the
corruption, protecting the environment, inoculating the children - and much,
much more. Development is about putting all the component parts in place -
balanced economic and social programs.
The challenge is immense, and this means that everyone involved in the
development process - governments, institutions such as the Bank, civil
society, and the private sector - must work in close partnership to define the
needs and implement the programs.
The global fight against poverty is aimed at ensuring that people everywhere
in this world have a chance for a better life for themselves and for their
children. Over the past generation, more progress has been made in
reducing poverty and raising living standards than during any other period in
history. In developing countries:
• 3 billion live on less than $2 a day and 1.3 billion on less than $1
a day
• 40,000 die of preventable diseases every day
• 130 million never have an opportunity to go to school
• 1.3 billion do not have clean water to drink
All countries have a stake in meeting these challenges. Raising living
standards and promoting growth and development in the world's poorer
countries also expands trade, jobs, and incomes in the wealthier countries.
Equally, an increase in poverty in developing countries can adversely affect
wealthier nations as markets and investment opportunities shrink, the
environment is damaged, and people migrate in search of work and income.
We live in one world - a world linked by communications and trade, by global
finance and a shared environment, and most of all by common aspirations
for a better life. The fight against global poverty is - without question - a
global responsibility.
49
The World Bank is the world's largest source of development assistance,
providing nearly $30 billion in loans annually to its client countries. The Bank
uses its financial resources, its highly trained staff, and its extensive
knowledge base to individually help each developing country onto a path of
stable, sustainable, and equitable growth. The main focus is on helping the
poorest people and the poorest countries, but for all its clients the Bank
emphasizes the need for:
50
governance, and institutions, the need for an integrating framework of this
kind became apparent. The CDF approach calls for a development plan
"owned" by the country itself, focused on a long-term vision of the results to
be achieved, and supported by strong partnerships among governments,
donors, civil society, the private sector and other development actors.
In launching the CDF, the Bank has focused attention on what it sees as the
essential building blocks for effective development:
51
Programs of the World Bank
Through its loans, policy advice and technical assistance, the World Bank
supports a broad range of programs aimed at reducing poverty and
improving living standards in the developing world. Effective poverty
reduction strategies and poverty-focused lending are central to achieving
these objectives. Bank programs give high priority to sustainable, social and
human development and strengthened economic management, with a
growing emphasis on inclusion, governance and institution-building.
Investing in People
No country will grow economically and reduce poverty while its people
cannot read or write, or while its people struggle with malnourishment and
sickness. As we enter the new millennium, hundreds of millions of people
lack the minimally acceptable levels of education, health, and nutrition that
so many in the industrialized world take for granted. This is not just a moral
issue, it is a global economic travesty and a major impediment to the
reduction of poverty.
Accordingly, the Bank targets much of its assistance where the impact is
greatest - on basic social services such as reproductive and maternal health
care, nutrition, early childhood development programs, primary education,
and programs that target the rural poor and women. As the single largest
investor in social sectors, the Bank has provided loans totaling over $40
billion for more than 500 projects for human development in 100 countries.
52
The Bank goes to great lengths to ensure that its projects do not harm the
natural environment. All projects are screened to determine whether they
pose environmental risks. Environmental assessments are undertaken on
projects that may be harmful and the Bank includes special measures in
such projects to avoid environmental damage. Environmental concerns have
been mainstreamed into all Bank activities, because experience has shown
that it is more cost effective to prevent environmental damage than to clean
it up later.
Since its inception, the Bank's private sector affiliate, the International
Finance Corporation (IFC), has supported some 2,000 companies in 129
countries through more than $21 billion in financing from its own account
and $15 billion arranged through syndications and underwriting. The IFC also
53
helps countries establish capital markets and provides advisory services for
privatization of state-owned enterprises.
Fighting Corruption
For governments to be effective, they must have the trust and confidence of
the people they serve. Corruption has a devastating economic and social
impact. It undermines trust in government and diminishes the effectiveness
of public policy. It impedes investor confidence and has a negative impact on
foreign investment. Corruption also reduces the effectiveness of aid and
threatens both political and grassroots support for donor assistance.
While citizens and governments must themselves lead the fight against
corruption, the Bank has been assisting a number of countries with their anti-
corruption efforts. The Bank has conducted surveys to diagnose the extent
and character of corruption in a given country. It has also organized
workshops, courses and training for government officials and members of
civil society. But most far-reaching, perhaps, are the efforts the Bank is
making to help countries identify and implement the policy and institutional
reforms which can minimize opportunities for corruption; these reforms
include better financial regulation, supervision and disclosure; greater
transparency in public sector decision-making; and greater accountability in
54
the private sector through the confirmation of shareholder and creditor
rights.
Leveraging Investment
The World Bank's unique partnership with its client governments, and its role
in helping them shape their plans and priorities, equip it to play a strong
coordinating role in leveraging funds for development.
IBRD and IDA loans and credits typically cover less than half of the total
investment costs of a project. The remainder is provided by client
governments themselves or by co-financiers. In this fashion, the resources
that the Bank raises from bondholders and shareholders are multiplied in
both scope and effectiveness.
The World Bank provides over $24 billion in assistance to developing and
transition countries every year. The Bank's projects and policies affect the
lives and livelihoods of billions of people worldwide - sometimes for the
better, but very often in controversial and problematic ways.
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The main reason for a lack of economic growth in these countries is a
corresponding lack of economic freedom. A lack of economic freedom
prevents countries from creating wealth and prosperity, and a recent
worldwide survey of economic freedom finds that many World Bank
recipients have economies that are mostly not free or repressed. The 1996
Index of Economic Freedom, published by The Heritage Foundation, analyzes
the level of economic freedom in 142 countries.18 The study considers ten
economic factors -- trade, taxation, government consumption, monetary
policy, banking, foreign investment, wage and price controls, private
property rights, regulation, and black markets -- and categorizes each
country as having a "free," "mostly free," "mostly not free," or "repressed"
economy. The findings of the study demonstrate that a majority of World
Bank loan and grant recipients do not have significant levels of economic
freedom:
Thus, most long-term recipients of World Bank loans and grants still do not
have significant levels of economic freedom. Moreover, those recipients that
have performed particularly poorly are the least economically free:
• The 18 countries whose economies have shrunk since they have been
World Bank recipients, 16 have either "mostly not free" or "repressed"
economies.
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Development without World Bank
Hong Kong
In the 1960s, the U.S. foreign aid community and international lending
institutions like the World Bank decided that the East Asian region was
barren of economic promise and that they should focus their aid on Africa
instead. Hong Kong received no aid from the World Bank and only a small
amount in U.S. foreign aid -- $43 million, most of which was cut off after
1965. The World Bank admitted that many economists misjudged the
economic prospect in Asia. In the commemorative volume marking the
Bank's 50th anniversary, the authors state: "In the 1960s, many economists
were more optimistic about sub-Saharan Africa than East Asia. Yet, East Asia
proved to be the 'miracle' of the developing world -- and sub-Saharan Africa
its most daunting challenge.
While eschewing foreign aid after 1965, Hong Kong at the same time began
a massive economic liberalization program. This included reforms in many
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sectors, including banking and financial services, government regulation of
business, and foreign investment laws. Among the most important of these
reforms was lowering barriers to international trade and making Hong Kong's
trade laws consistent with international standards. The government
eliminated virtually all tariffs, duties, licensing requirements, and other
import barriers. It also set up export processing zones, or "free trade areas,"
that allowed manufacturers to cut through red tape to sell their products
overseas. These reforms enabled Hong Kong to create a large export
industry which provided much of the fuel for Hong Kong's economic growth.
Another critically important reform took place when Hong Kong established a
tax structure that allows individuals and businesses to keep most of the
wealth they create. For example, Hong Kong has a flat tax of 20 percent on
incomes over $155,000. The worker making the average income of about
$22,500 is taxed only 2 percent. Hong Kong's corporate tax rate is a flat 16.5
percent, compared to 35 percent in the U.S. these and other economic
reforms helped turn Hong Kong into the economic powerhouse it is today.
After these economic reforms were in place, Hong Kong's economy indeed
took off. GDP increased 9.2 percent a year from 1970 to 1980. From 1980 to
1993, it increased an additional 6.5 percent. Overall, over the past 35 years,
Hong Kong's per capita GDP has grown an astonishing 530 percent, with
most of this growth occurring since the beginning of economic liberalization.
Singapore
As World Bank loans were drying up, Singapore, like Hong Kong, embarked
on a course of economic liberalization -- with the same stunning results.
Starting in the late 1960s and continuing into the 1970s, Singapore instituted
a series of economic reforms aimed at achieving two major goals. The first
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was to promote increased foreign investment and higher levels of exports.
To this end, Singapore opened its market to foreign investors. By 1970, some
80 to 90 percent of all manufactured exports were derived from foreign
investment. Why did foreign investment pour into Singapore? There are
many reasons. One surely was that Singapore's legal system, based in British
common law, provided rule of law, an efficient legal system, and a way for
investors to achieve protection of their investments through contracts.
Equally important was the fact that Singapore established a foreign
investment code, free of local content or production restrictions, which
guaranteed equal treatment under the law for both domestic and foreign
firms.
The second goal was to reform Singapore's tax system. Singapore adopted a
tax system that reduced the burden on most of the people. For example,
while the top tax rate is 30 percent, the tax on the average income level of
$21,000 is little or none. In fact, the average Singapore worker must make
almost $30,000 before paying taxes. For that first tax bracket, the rate is 19
percent. In addition, Singapore resisted the implementation of onerous
business regulations; abolished trade restrictions on imports (the average
tariff rate now is about 0.4 percent, compared to 3.3 percent in the U.S.);
and has kept inflation below 3 percent a year since the mid-1970s.
Hong Kong and Singapore have achieved the highest levels of economic
prosperity to be found anywhere among the world's recently developed
countries. In fact, they have achieved phenomenal economic growth rates
that are the envy of the developed world. The evidence suggests that their
policies of economic freedom are the principal reason for this success. There
is a direct correlation between the economic freedom these countries have
achieved and their tremendous economic growth over the past 30 years.
There is also a direct correlation between this growth and a lack of aid from
the World Bank. World Bank assistance was in no way responsible for
creating the best development success stories the world has seen over the
past 30 years.
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CONCLUSION
The global challenges of the past several years have been unprecedented,
and the World Bank has played a central role in dealing with many of these
situations. The Bank helped battle the debt crisis in Latin America in the
1980s and the Asian financial crisis in the late 1990s, and both regions
continue to present significant development challenges. The Bank is deeply
involved in efforts to assist countries emerging from conflict situations, as
well as those struggling to deal with natural disasters. The Bank is helping
60
the poorest countries reduce their debts to manageable levels, and is
increasingly focusing its efforts on building efficient and accountable public
sector institutions.
But while global crises have succeeded in focusing attention and resources
on these problems, a sobering fact remains: the number of people living in
poverty is rising. Yes, some progress has been made: life expectancy has
risen, infant mortality has dropped, and more girls are in school than ever
before. But in many of the world's poorest countries, progress on poverty
reduction and sustainable development is lagging.
Whether you look at it from the social or the economic or the moral
perspective, development is a challenge we cannot afford to ignore. There
are not two worlds, there is one world. We breathe the same air. We share
the same environment. We have the same health problems. AIDS is not a
problem that stops at borders. Crime does not stop at borders. Drugs do not
stop at borders. Terrorism, war, and famine do not stop at borders. The fight
against poverty is the fight for peace, security, and growth for us all.
Since 1944, the World Bank has spent $346 billion trying to advance
economic development around the world, and not all of this money has been
repaid. While it played an important role in getting Europe on its feet after
World War II, the World Bank has drifted away from its original mission to
become little more than a clearinghouse for international welfare. Most
recipients of loans and grants are no better off today than when they first
received them. In fact, many are worse off.
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61
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