Definition of The World Bank and Functions and Organization

The World Bank

The International Bank for Reconstruction and Development (IBRD), better known as the World Bank, was established at the same time as the International Monetary Fund (IMF) to tackle the problem of international investment.

Since the IMF was designed to provide temporary assistance in correcting the balance of payments difficulties, an institution was also needed to assist long-term investment purposes. Thus, IBRD was established for promoting long-term investment loans on reasonable terms.

The World Bank (IBRD) is an inter-governmental institution, corporate in form, whose capital stock is entirely owned by its member-governments. Initially, only nations that were members of the IMF could be members of the World Bank; this restriction on membership was subsequently relaxed.

Functions

The principal functions of the IBRD are set forth in Article 1 of the agreement as follows:

To assist in the reconstruction and development of the territories of its members by facilitating the investment of capital for productive purposes.

To promote private foreign investment by means of guarantee of participation in loans and other investments made by private investors and when private capital is not available on reasonable terms, to make loans for productive purposes out of its own resources or from funds borrowed by it.

To promote the long-term balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment for the development of the productive resources of members.

To arrange loans made or guaranteed by it in relation to international loans through other channels so that more useful and urgent projects, large and small alike, will be dealt with first. It appears that the World Bank was created to promote and not to replace private foreign investment. The Bank considers its role to be a marginal one, to supplement and assist foreign investment in the member countries.

A little consideration will show that the objectives of the IMF and IBRD are complementary. Both aim at increasing the level of national income and standard of living of the member nations. Both serve as lending institutions, the IMF for short-term and the IBRD for long-term capital. Both aim at promoting the balanced growth of international trade.

Organization

Like the Fund’s the Bank’s structure is organized on a three-tier basis; a Board of Governors, Executive Directors and a president. The Board of Governors is the supreme governing authority. If consists of one governor (usually the Finance Minister) and one alternate governor (usually the governor of a central bank), appointed for five years by each member.

 The Board is required to meet once every year. It reserves to itself the power to decide important matters such as new admissions, changes in the bank’s stock of capital, ways and means of distributing the net income, its ultimate liquidation, etc. For all technical purposes, however, the Board delegates its powers to the Executive Directors in the day-to- day administration.

At present, the Executive Directors are 19 in number, of which five are nominated by the five largest shareholders- the U.S.A., the U.K., Germany, France and India. The rest are elected by the other member. The Executive Directors elect the President who become their ex-officio Chairman holding office during their pleasure. He is the chief of the operating staff of the Bank and subject to the direction of the Executive Directors on questions of policy and is responsible for the conduct of the ordinary business of the Bank and its organization.