Among the most famous and large-scale international financial organizations - the World Bank. The activity of this institution is recognized by experts as extremely important from the point of view of balanced development of the economies of the states of the world. Among the key activities of the World Bank is to assist developing countries in improving the model of the national economy. To successfully solve this and other tasks, several institutions were created in the WB structure. What is their specificity? How are WB functions implemented?
General information about the World Bank
What kind of institution is the World Bank? The full name and functions of this structure - what are they remarkable about? The World Bank (The World Bank, WB) is an international financial organization that unites several different institutions.
In accordance with public data reflecting the World Bank's activities, the main task of the Bank is to improve the level of economic development of states by providing them with financial assistance from the countries that are provided. The organization was established in 1945. The headquarters of the bank is located in Washington.
Consider the specifics of the institutions that form the structure of the World Bank. The financial institution under consideration includes:
- IBRD (or the International Bank for Reconstruction and Development);
- IDA (association, head of development issues);
- IFC (or the International Finance Corporation);
- MAGI (an agency that manages investment guarantees);
- ICSID (the center that deals with the settlement of disputes in the framework of investment projects).
These organizations are called upon to provide loans to eligible countries at acceptable rates, and in some cases - interest-free loans. Also, countries are supported through grants. The conditions for providing appropriate assistance to the World Bank include liberalization of the economy, privatization, necessary reforms in education, health care, and infrastructure improvement.
Let us now consider the main functions of the World Bank.
Researchers distinguish their following spectrum:
- Investment activities (mainly in developing countries, in healthcare, as well as in education);
- Consulting support of national governments on economic issues, analytical work;
- Improvement of provided financial services;
- Intermediary activity (in the sphere of resource allocation between developed and economically backward countries).
Thus, the considered financial structure plays an important role for the world economy. The noted functions of the World Bank are important from the point of view of balanced economic development of modern states. Let's consider now, through what mechanisms the WB realizes them in practice. This issue can be considered in the context of the activities of the above-mentioned institutions that are part of the World Bank structure. Let's start with IBRD.
Specificity of IBRD
IBRD or the International Bank for Reconstruction and Development is an institution that, apart from the World Bank, is also subordinated to the UN. Many functions of the World Bank are implemented on the basis of this organization. In fact, IBRD is the main 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 established after the Bretton Woods Conference. The purpose of his institution was to stimulate the restoration of the economies of states that were affected in the course of military operations.
In the 1950s, MBRD began to perform some of the functions of the World Bank, as noted above - in particular, to provide loans to developing countries. In the 1990s, the organization began to issue loans of the appropriate type to countries with a transitional economic system. The specifics of IBRD loans are long-term. Loans are issued by the institution for a period of about 15-20 years. Financial assets of the bank are formed by membership fees, the amount of which depends on quotas, determined for the participating states.
Specificity of IDA activities
Another important structure responsible for the functions of the World Bank - IDA, or the International Development Association. It was founded in 1960. The purpose of its establishment was to provide concessional loans with a long repayment period - about 40-50 years - to states characterized by a low level of economic development. For example, in 1961, the organization decided to issue loans to India, Chile, Honduras, and Sudan. IDA not only issues loans to help governments of countries with low levels of economic development, but also facilitates the export of goods from developed to developing countries. Also in the competence of IDA is the implementation of various social programs. The states that are not able to service loans on IBRD terms can count on a loan from IDA. Since its inception, the organization has extended loans of more than $ 90 billion.
What does the IFC do?
IFC, or the International Finance Corporation, is another important structure that includes the World Bank Group. Its functions are limited to providing 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, improve the living standards of citizens living in them. Loans from IFC are issued to private enterprises, which show good figures on profitability. The term of loans is within 15 years. For all of its activities, the organization has extended loans of more than 20 billion US dollars.
Features of MIGA
What is especially noteworthy for the World Bank is that the structure and functions of this organization are fairly balanced among the separate structures. Among the agencies responsible for solving a large volume of investment tasks is MIGA. What does it do? MIGA, or the International Investment Guarantee Agency, deals with insurance of relevant financial investments from various non-commercial risks, as well as consulting work in the communication process with the governments of states. MIGA encourages the attraction of capital to developing countries in order to improve their economic performance.
The risks analyzed by the organization's experts may reflect the specifics of currency transfers, the confiscation of private property, and political instability. MIGA contributes to ensuring the sustainability of financial flows in developing countries, as well as informing investors about the prospects for monetary investment in the economies of the countries concerned. Among the main instruments of MIGA's activity are guarantees. The organization has issued them for more than 17 billion US dollars since its inception. With the assistance of the institution in developing countries, investments in the amount of more than 50 billion US dollars were placed.
The specifics of the work of ICSID
Studying the specifics that characterize the structure and functions of the World Bank, it is necessary to investigate the specifics of the activities of ICSID, or the International Center for Settlement of Investment Disputes. This organization helps protect the interests of partners involved in certain investment projects within the framework of available legal procedures. ICSID deals with elimination of possible non-economic barriers that accompany the interaction of states and enterprises in the process of international cooperation. The considered institution realizes 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 for the purpose of resolving the main task that is in the competence of an institution such as the World Bank - the development of states with a lagging economy. The organization provides loans in two main varieties. Firstly, these are investment loans. They are provided for the purpose of financing industrial sectors in the economies of developing countries, as well as in other segments of economic systems that are important from the point of view of solving social and economic problems. Secondly, these are targeted loans aimed at stimulating the political development of countries. Receiving them implies carrying out the necessary reforms by the states.
In some cases, the World Bank can perform functions that actually reduce to intermediation between other financial institutions or investors and governments of countries in need of financial support. For example, the receipt of the necessary loans by the state in a number of cases may be due to the need to match their economies and political systems to certain criteria that creditors wish to see. The activities of the World Bank can therefore be associated with advisory support of the governments of states for the implementation of activities aimed at achieving the conformity of the national economic and political systems with the necessary criteria.
The WBG activity strategy
The main areas of the WB activities, both in the field of credit policy and in the field of advisory services, are recorded in a separate document - the WBG Group Strategy. This source is used as a key factor in the interaction of the World Bank with governments of states in need of financial assistance. The strategy is also a framework. Specific areas of WB activities in the field of assistance to an individual 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 the institution's activities, such as the World Bank. The decoding and functions of this organization are also known to us. We will now study this aspect of WB activities, such as raising funds for financing activities. From what sources does this international organization function?
There are different ways of attracting the 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 attracted through the sale of high-rated bonds. 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 debt servicing to IBRD. The WB also has a reserve capital of more than $ 193 billion. In practice, the organization has not yet used this resource, but it has such a right.
WB and other international organizations
So, we studied the key features that characterize the World Bank. The full name and functions of this institution are also known to us. Can we 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 us consider a number of examples.
In particular, the functions of the World Bank and OPEC have a certain closeness. The fact is that a significant percentage of the states belonging to the Organization of Petroleum Exporting Countries belongs to the category of developing countries. The functions of OPEC are expressed, in particular, in stimulating the development of their economies through well-established procedures for exporting the appropriate type of raw materials to world markets.
The World Bank and the IMF
Functions and role in the world economy of the World Bank are sufficiently close to those for the IMF (International Monetary Fund). These organizations also unite the fact that they are both established to restore the economies of the countries of the world after the Second World War. The principles of building the organizational structure of the World Bank and the IMF are quite close. So, for example, the amount of the contribution of a state to the total capital of an institution determines the degree of its influence on the activities of the institution. The similarity of the functions of these organizations can be traced to the fact that they are concentrated around solving the problems of stimulating the economic development of countries that need external financial support, for example, due to a deficit in the balance of payments.