Global financial mechanisms - Part IV

The World Bank

By Henry Lamb

The World Bank was created in Bretton Woods, New Hampshire, along with the International Monetary Fund, in 1944. The World Bank, however, was created to serve a completely different purpose: to provide loans to countries whose infrastructure was destroyed by the war. Originally, the official name was The International Bank for Reconstruction & Development (IBRD). Over time, the World Bank has grown to encompass five different financial institutions. They are:

• IBRD - International Bank for Reconstruction & Development

• IDA - International Development Association

• IFC - International Finance Corporation

• MIGA - Multilateral Investment Guarantee Agency

• ICSID - International Center for Settlement of Investment Disputes

Here is a representation of the United States' involvement in each.

Institution	Since	Shares	%	$
IBRD	1944	265,219	16.53	$3,111,276,000 (current share value)
IDA	1960	1,745,962	14.99	$23,431,490,000 (cumulative contribution)
IFC	1956	35,168	35.17	$35,168,000 (current share value)
MIGA	1985	36,160	34.07	$391,251,200 (current share value)
ICSID	1966	N/A	N/A	N/A

Each of these institutions exist by virtue of their own enabling documents, Articles of Agreement, in most cases, The ICSID, however, is the result of an international treaty: Convention on the Settlement of Investment Disputes between States and Nationals of Other States (October 14, 1966). Nevertheless, the ICSID exists as a budget item within the World Bank, and its staff reports directly to the President of the World Bank. The student of international finance will need to dig much deeper than this report to discern the actual structural relationships that exist among these institutions. Our purpose here is to identify the broad relationships, and differentiate the functions of each.

Robert E. Rubin

The World Bank, and its various components, are governed by a Board of Governors consisting of one representative and one alternate from each member country. The Governor for the United States is Robert E. Rubin, and his alternate is Stuart E. Eizenstat. Rubin was Secretary of the Treasury from 1995 to July, 1999. Among other prestigious positions, he served as a Trustee of the Carnegie Corporation before his stint with the government. Eizenstat is an Undersecretary of State, who worked for Hubert Humphrey, the Carter administration, and was Ambassador to the European Union.

The Board of Governors meet only once each year to receive the Bank's annual report and act on major issues such as changes in the Articles of Agreement or in the capital base. The day-to-day activities of the bank are governed by an Executive Board consisting of 24 Executive Directors. The five largest contributors have a single Director; the remaining countries are represented by Directors who represent groups of countries. The United States is represented on the Executive Board by Jan Piercy, whose alternate is Michael Marek. Piercy was appointed in 1994. She is a product of Wellesley College and the Woodrow Wilson School of Princeton.

James D. Wolfensohn

The Executive Board is chaired by the Bank's President, James D. Wolfensohn, who was appointed to his second five-year term in September, 1999. Wolfensohn is a former Director of the Business Council for Sustainable Development, Director of the Rockefeller Foundation, the Rockefeller University, the Population Council, and a member of the Council on Foreign Relations.

Each of the institutions of the World Bank operate as separate administrative units, but all report directly to Wolfensohn.

The International Bank for Reconstruction & Development

Originally, the IBRD focused its efforts on funneling money into Europe to rebuild war-torn cities. When that work was done, it turned its attention to helping developing countries "improve the quality of life for people everywhere." The IBRD does not make grants; it makes loans that are repaid. It makes loans only to governments (or to an entity that is guaranteed by the government) that cannot obtain loans from normal commercial sources. The money for these loans comes from investor bonds issued by the World Bank. Developing countries that obtain loans from the IBRD pay interest slightly higher than the market rate, and repayment schedules may extend to 15 years.

The Bank's lending criteria requires that a project must demonstrate the potential of at least a 10 percent return on investment, twice the return required by most commercial banks. Moreover, projects must meet extensive "Sustainable Development" criteria which include "programs for family planning."

In precisely the same way the federal government attaches strings to money returned to the states, in order to ensure that administration policies are achieved, the World Bank attaches a number of strings to the loans it extends, in order to see that its policies are implemented. With both the federal government, and the World Bank, the social and environmental policies attached as strings to the money, come directly from Agenda 21, adopted at the United Nations Conference on Environment and Development in 1992.

International Development Agency

The IDA provides loans to the poorest countries, and charges no interest on loans that may extend to 40 years, including a 10-year grace period. To qualify for an IDA loan, the per capita income within the country cannot exceed $925. These loans carry only a fee of .075 percent on the unpaid balance. Currently, 78 nations are eligible to borrow from the IDA. Money for IDA loans comes largely from contributions from richer countries. Of the $115 billion loaned by the IDA since its inception in 1960, $96 billion has come from contributions. The United States has contributed 23.72 percent of the total, more than $23 billion dollars. The additional funds came from repayments from earlier IDA loans and from income earned by the IBRD.

IDA loans must meet the same criteria required by IBRD loans. A major function of the World Bank's 7000 staff members is to provide "technical assistance" to borrower countries to assure that policy objectives are met. "Good government," is listed as a high priority in the World Bank's lending criteria.

These are the loans that are the object of a growing world-wide "forgiveness" campaign. Recommendations from the Commission on Global Governance, and one of the principles in the Charter for Global Democracy, call for the reduction or forgiveness of these loans. Wolfensohn launched what is called the "Heavily Indebted Poor Countries Initiative" (HIPC) which is a comprehensive debt reduction program. At its annual meeting last September, the Board of Governors approved a program to double the amount of relief, and to make more countries eligible for assistance. These debt-relief programs turn loans into grants, despite the World Bank's insistence that it makes no grants.

The World Bank is one of several Global financial mechanisms that take American tax money and redistribute it to other nations. Few Americans realize that the charity they make possible through their taxes, is given to other countries only if those countries agree to implement policies dictated by the international community, not by the donors. The World Bank's insistence on population control programs as a condition of receiving American tax dollars is a point that infuriates many American taxpayers.

International Finance Corporation

The IFC is unlike its sister institutions in that it finances only projects that are privately owned and controlled. IFC financing is available to any company or entrepreneur who cannot get financing from other sources on reasonable terms. Its function is to act as a catalyst by partial participation in a project. The presence of the IFC in a project often provides a higher level of confidence to other commercial investors who would not consider the project without the IFC's participation. Since its founding in 1956, the IFC has provided $21.2 billion in financing from its own accounts, and arranged an additional $15 billion from outside sources for 1852 projects in 129 developing countries. The United States has provided 35.17 percent of the capital for the IFC. The same social and environmental policy criteria are applied to IFC projects.

Multilateral Investment Guarantee Agency

This 1985 addition to the World Bank Group, provides "insurance" to foreign investors who finance projects in developing countries. The insurance is against "non-commercial" risks. One of the greatest deterrents to foreign investment in developing countries has historically been political instability. During the five years prior to the launching of MIGA, 29 countries in Africa, Latin America, and Asia, expropriated or nationalized 42 private companies.

In the 1980s, private foreign investment in developing countries averaged only $19 million per year. By 1990, after MIGA, foreign private investment in developing countries reached $23.7 billion. By 1997, it had grown to more than $120 billion.

As a result of increased private investment in developing countries, official development aid is shifting toward refugee relief and emergency aid. In 1990, only two percent of official development aid was spent for these purposes; by 1997, 12 percent was used for these purposes.

Projects guaranteed by MIGA must meet the same social and environmental policies required by other World Bank institutions.

International Centre for Settlement of Investment Disputes

ICSID is an autonomous international organization, created by international treaty, in 1966. It functions, however, as an administration unit within the World Bank. Recourse to the ICSID is voluntary, but once parties have consented to ICSID arbitration, neither can withdraw, and all parties to the treaty are required to enforce the ICSID awards.

In 1978, the ICSID adopted "Additional Facility Rules" that provide for arbitration of disputes among parties that are not a part of the treaty, and disputes that are not related to investments. The Secretary-General of the Convention appoints the arbitrators to settle disputes. The ICSID has authority to arbitrate disputes arising from more than 900 bilateral investment treaties, as well as the North American Free Trade Agreement (NAFTA). ICSID maintains arbitration facilities around the world.

Conclusion

This brief overview of the World Bank can't begin to describe the extensive reach of this global financial mechanism. It is one of the most important mechanisms through which taxes collected in wealthy nations are redistributed to developing nations, with strings attached, to force developing nations to conform to the global agenda.

One of the recommendations of the Commission on Global Governance is to bring all the global financial mechanisms under the control of a new Economic Security Council at the United Nations, and to incorporate all of them into one of five new administrative units directly under the control of the United Nations Secretary-General.

For the most part, the people of the United States have no idea how their tax dollars are being used when they are sent off to these global financial mechanisms. A single presidential appointee, with virtually no Congressional oversight, is responsible for spending billions of American tax dollars, which ultimately implement policies established by United Nations' agencies. Control of the global money flow is prerequisite to achieving global governance. The United Nations is systematically achieving its goal.