The World Bank

Defining the world Bank

The World Bank/ World Bank Group (WBG) is an international organization affiliated with the
UN and designed to finance projects that enhance the economic development of member states.
Its headquarters are in Washington DC and it is composed of 185-member states.
It is the largest source of financial assistance to developing countries.
Together with the IMF and the WTO it plays a central role in overseeing economic policy and
reforming public institutions in developing countries and defining the global macroeconomic
agenda.
The WBG was founded in 1944 st the UN Monetary and Financial Conference / Bretton Woods
Conference but officially began operations in June 1946.
Initially, the WBG was geared towards providing loans for post war reconstruction of Western
Europe after World War 2. However, it then moved on to financing investments in infrastructural
projects in developing countries. (Encyclopedia Britannica)
As of 2016, the bank predominantly acts as an organization that attempts to fight poverty by
offering developmental assistance to middle- and poor-income countries. (Investopedia)
The World bank lending has become controversial as many countries use their loans to prevent
sovereign debt which comes as a result of overspending and extensive borrowing. (the
balance.com)
 The Significance of The World Bank

The organisation has set two goals for the world to achieve by 2030:
End extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no
more than 3%.
Promotes shared prosperity by fostering the income growth of the bottom 40% for every country.

The World Bank Consist of five organisations:

International bank for reconstruction and development which lends to governments of middle-
and low-income countries.
International development association provides interest free loans and grants to government of
the poorest countries.
International finance co-operation –finances development and investment in private section to
achieve sustainable development
Multilateral investment guarantee agency- promotes foreign direct investment into developing
countries to support economic growth, reduce poverty, and improve people’s live.
International centre for settlement of investment disputes provides international facilities for
conciliation and arbitration of investment disputes.

The World Bank Provides:

Low interest loans, zero- to- low interest credits and grands to developing countries.
Investments in education, health, public administration, infrastructure, financial and private
sector development, agriculture and environmental and natural resource management.
Support to developing countries through policy advice, research and analysis, and technical
assistance.
 How does the World Bank specifically contribute to Globalisation?

 Member nations are given the opportunity to enhance their abilities for extending
commerce and social abilities (education for participating in the global economies and
trades
 Increased access of producers to larger international markets that are possible or highly
enhanced by the assistance of loans from the World Bank.
 The financial support via loans enables economies to face stronger competition in world
markets and thus accelerating the globalisation where otherwise these countries would
not have the means to participate.
 The world Bank gives the developed nations to extend their business, economies, and
technology to the loan receiving countries and thus making additional inroads to
globalisation. Technological Knowledge transfers are important for developing countries
because they give them a chance to catch up more quickly with the develop countries in
terms of productivity where the developed nations can make them partners in the global
trading marketplace.
 How does the world Bank contribute to development in the Caribbean?

“Tourism is the most important industry in the OECS, ranging from 26 percent of GDP in
St. Vincent and the Grenadines to 74 percent of GDP in Antigua and Barbuda. Because
these are small economies, diversifying sources of growth and revenue is difficult, which
makes them vulnerable to trade volatility.” - Francisco Carneiro, World Bank lead
economist for the Caribbean.

The World Bank Group has highlighted key priorities to promote sustainable
growth in the Caribbean, this includes:

 Counter-cyclical fiscal policy:

This can help to mitigate the impact of the trade volatility in the OECS by helping small
economies who often lack the resources to make large public investments adopt fiscal
responsibility laws and fiscal rules is key for these countries, allowing them to save more
during good times in case natural disasters or economic shocks occur. An example of this
being demonstrated in the Caribbean is the island of Grenada. Grenada is setting the
example in the region having recently adopted a medium-term fiscal framework anchored
on clear spending rules.

 Deeper regional integration to allow cost sharing in risk pooling:

This would promote stable growth to the Caribbean. Investing in shared public services,
such as a regional transportation infrastructure would allow cost pooling and improve
connectivity in the region. An example of this at work is the Caribbean Catastrophe Risk
Insurance Facility, it is an effective and attractive risk pooling mechanism able to
mobilize emergency funds within the first two weeks.
 A stronger financial sector:
This remains a priority, particularly for Eastern Caribbean countries. A new Banking Act
to improve banking supervision and future consolidation has been passed, which is an
important step to improve access to finance.
 How the World Bank Hinders Development?

In an article called: “The World Bank and IMF in developing Countries: Helping or
Hindering?” by the International Journal of African and Asian Studies Vol. 28, 2016, it is
said that “even though international institutions including the World Bank play a major
role in the international arena and contribute to different areas, they face overwhelming
criticisms from economists, professionals from other files as well as leaders and citizens
of various countries, particularly from developing countries.” This is due to the fact that
the World Bank is seen by some as a tool of imperialism. In other words, it extends the
U.S’ power and influence by gaining political and economic control of other areas.
The World Bank does in fact assist developing countries, by providing loans, credits,
grants and aid when needed, but at what cost?

In 1980, the total external debt of all developing countries was (US) $609 billion.
However, in 2001, after twenty years of help from the World Bank through structural
adjustment, which aims at removing countries from financial crisis, the total debt of all
developing countries now totaled (US) $2.4 trillion. Almost like trying to put out a fire
with gasoline, the debt just kept on accumulating.

Jamaica, for example, has a debt to GDP ratio that is over 100%. Trying to pay off debt
(referred to as debt service) proved to be a major difficulty for many countries. High
levels of debt can slow down growth and transfer the financial burden to future
generations. This is quite the opposite of sustainable development. Many small Caribbean
islands, like St. Lucia, have limited opportunities for revenue generation, with the main
industry being the tourism industry which may not be as reliable as others. Despite this,
the growing interest rates, along with primary payments must be paid to the World Bank.
The World Bank also enables foreign currency easy and safe opportunities for investment
in the Caribbean. Certain operations like odious loans, which are specific for
infrastructure building, have a condition that US companies have to run them. This means
that majority of the funds go back to the US without providing much financial benefit to
the country’s economy at all.

A country’s budget can only do so much and much needed expenditures and investments
sometimes have to be put on the back burner to pay off loans. This in itself may lead to
more borrowing and requests for aid in order to invest in the country’s infrastructure,
education system, infrastructure, among other resources with the aim of improving
people’s quality of life and standard of living. Due to this, countries can be left in the
unforgiving debt cycle like many are today