BUSI 303
(Liberty University)
INTERNATIONAL BANK FOR RECONSTRUCTION AND
DEVELOPMENT (IBRD) AND WORLD FINANCIAL
INSTITUTIONS
The International Bank for Reconstruction and Development (IBRD), or the
World Financial Institution, one of the Bretton Woods Twins, was
established in 1945. The IBRD has affiliates - the International
Development Association (IDA) and the International Finance Corporation
(IFC). The IBRD, whose capital is subscribed by its member nations,
finances its lending operation mainly from its own borrowings in the global
capital markets. A significant contribution to the financial institution's
resources also comes from its retained earnings and the flow of payments
on its loans. IBRD loans generally have a grace period of five years and
are repayable over 20 years or less. They are directed towards developing
countries at more advanced stages of economic and social growth. The
interest rate the IBRD charges on its loans is calculated according to a
guideline related to its cost of borrowing.
Under the Articles of Agreement of the bank, all powers are vested in the
bank's Board of Governors, including the Governor for every member
country. Except for certain powers specifically reserved for them by the
Articles of Agreement, the Governors have delegated their powers to a
Board of Executive Directors that performs its duties on a full-time basis at
the bank's headquarters. There are twenty-one executive directors, each
director selecting an alternate director. As provided for in the Articles of
Agreement, five directors are appointed by the five members having the
largest amount of stocks of capital stock, and the rest are elected by
governors representing other member countries.
The executive directors are responsible for the conduct of the overall
operations of the bank. They decide on bank policy within the framework
of the Articles of Agreement. They also decide on all loan and credit
proposals. In practice, they reach most of their decisions by consensus.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
1. To assist in the reconstruction and development of the territories of
the members, by facilitating the investment of capital for productive
purposes, including the recovery of economies destroyed or
disrupted by war, the reconversion of productive facilities to
peacetime needs, and the encouragement of the development of
productive facilities and resources in less developed countries.
2. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
3. To promote the long-range balanced growth of international trade
and the maintenance of equilibrium in the balance of payments, by
encouraging international investment of the productive resources of
members, thereby assisting in raising productivity, the standards of
living, and conditions of labor in their territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
1. Making investments in partnership with private investors.
2. Ensuring that IFC's investments do not exceed half of the capital
requirements of the company.
3. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
4. Supporting predominantly commercial companies that contribute to
the economic development of the country.
5. Negotiating interest rates based on risks and other investments.
6. Not seeking or accepting government guarantees for repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
1. Promoting investment in the ESCAP region of public and private
capital for development.
2. Utilizing available resources to finance development, prioritizing
projects contributing to the harmonious economic growth of the
region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
1. Promoting international trade to accelerate economic development.
2. Formulating principles and regulations on international trade and
related economic development issues.
3. Negotiating multinational trade agreements.
4. Making proposals for implementing its principles and regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
1. Operational support through technical assistance to industries and
in-plant training programs.
2. Research, including feasibility studies on industry requirements in
developing countries.
3. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
1. Developing a national trade promotion strategy.
2. Establishing government institutions and services for exporters.
3. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
4. To assist in the reconstruction and development of the territories of
the members, by facilitating the investment of capital for productive
purposes, including the recovery of economies destroyed or
disrupted by war, the reconversion of productive facilities to
peacetime needs, and the encouragement of the development of
productive facilities and resources in less developed countries.
5. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
6. To promote the long-range balanced growth of international trade
and the maintenance of equilibrium in the balance of payments, by
encouraging international investment of the productive resources of
members, thereby assisting in raising productivity, the standards of
living, and conditions of labor in their territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
7. Making investments in partnership with private investors.
8. Ensuring that IFC's investments do not exceed half of the capital
requirements of the company.
9. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
10. Supporting predominantly commercial companies that
contribute to the economic development of the country.
11. Negotiating interest rates based on risks and other
investments.
12. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
3. Promoting investment in the ESCAP region of public and private
capital for development.
4. Utilizing available resources to finance development, prioritizing
projects contributing to the harmonious economic growth of the
region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
5. Promoting international trade to accelerate economic development.
6. Formulating principles and regulations on international trade and
related economic development issues.
7. Negotiating multinational trade agreements.
8. Making proposals for implementing its principles and regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
4. Operational support through technical assistance to industries and
in-plant training programs.
5. Research, including feasibility studies on industry requirements in
developing countries.
6. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
4. Developing a national trade promotion strategy.
5. Establishing government institutions and services for exporters.
6. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
7. To assist in the reconstruction and development of the territories of
the members, by facilitating the investment of capital for productive
purposes, including the recovery of economies destroyed or
disrupted by war, the reconversion of productive facilities to
peacetime needs, and the encouragement of the development of
productive facilities and resources in less developed countries.
8. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
9. To promote the long-range balanced growth of international trade
and the maintenance of equilibrium in the balance of payments, by
encouraging international investment of the productive resources of
members, thereby assisting in raising productivity, the standards of
living, and conditions of labor in their territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
13. Making investments in partnership with private investors.
14. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
15. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
16. Supporting predominantly commercial companies that
contribute to the economic development of the country.
17. Negotiating interest rates based on risks and other
investments.
18. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
5. Promoting investment in the ESCAP region of public and private
capital for development.
6. Utilizing available resources to finance development, prioritizing
projects contributing to the harmonious economic growth of the
region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
9. Promoting international trade to accelerate economic development.
10. Formulating principles and regulations on international trade
and related economic development issues.
11. Negotiating multinational trade agreements.
12. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
7. Operational support through technical assistance to industries and
in-plant training programs.
8. Research, including feasibility studies on industry requirements in
developing countries.
9. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
7. Developing a national trade promotion strategy.
8. Establishing government institutions and services for exporters.
9. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
10. To assist in the reconstruction and development of the
territories of the members, by facilitating the investment of capital
for productive purposes, including the recovery of economies
destroyed or disrupted by war, the reconversion of productive
facilities to peacetime needs, and the encouragement of the
development of productive facilities and resources in less developed
countries.
11. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
12. To promote the long-range balanced growth of international
trade and the maintenance of equilibrium in the balance of
payments, by encouraging international investment of the
productive resources of members, thereby assisting in raising
productivity, the standards of living, and conditions of labor in their
territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
19. Making investments in partnership with private investors.
20. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
21. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
22. Supporting predominantly commercial companies that
contribute to the economic development of the country.
23. Negotiating interest rates based on risks and other
investments.
24. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
7. Promoting investment in the ESCAP region of public and private
capital for development.
8. Utilizing available resources to finance development, prioritizing
projects contributing to the harmonious economic growth of the
region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
13. Promoting international trade to accelerate economic
development.
14. Formulating principles and regulations on international trade
and related economic development issues.
15. Negotiating multinational trade agreements.
16. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
10. Operational support through technical assistance to industries
and in-plant training programs.
11. Research, including feasibility studies on industry
requirements in developing countries.
12. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
10. Developing a national trade promotion strategy.
11. Establishing government institutions and services for
exporters.
12. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
13. To assist in the reconstruction and development of the
territories of the members, by facilitating the investment of capital
for productive purposes, including the recovery of economies
destroyed or disrupted by war, the reconversion of productive
facilities to peacetime needs, and the encouragement of the
development of productive facilities and resources in less developed
countries.
14. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
15. To promote the long-range balanced growth of international
trade and the maintenance of equilibrium in the balance of
payments, by encouraging international investment of the
productive resources of members, thereby assisting in raising
productivity, the standards of living, and conditions of labor in their
territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
25. Making investments in partnership with private investors.
26. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
27. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
28. Supporting predominantly commercial companies that
contribute to the economic development of the country.
29. Negotiating interest rates based on risks and other
investments.
30. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
9. Promoting investment in the ESCAP region of public and private
capital for development.
10. Utilizing available resources to finance development,
prioritizing projects contributing to the harmonious economic growth
of the region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
17. Promoting international trade to accelerate economic
development.
18. Formulating principles and regulations on international trade
and related economic development issues.
19. Negotiating multinational trade agreements.
20. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
13. Operational support through technical assistance to industries
and in-plant training programs.
14. Research, including feasibility studies on industry
requirements in developing countries.
15. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
13. Developing a national trade promotion strategy.
14. Establishing government institutions and services for
exporters.
15. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
16. To assist in the reconstruction and development of the
territories of the members, by facilitating the investment of capital
for productive purposes, including the recovery of economies
destroyed or disrupted by war, the reconversion of productive
facilities to peacetime needs, and the encouragement of the
development of productive facilities and resources in less developed
countries.
17. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
18. To promote the long-range balanced growth of international
trade and the maintenance of equilibrium in the balance of
payments, by encouraging international investment of the
productive resources of members, thereby assisting in raising
productivity, the standards of living, and conditions of labor in their
territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
31. Making investments in partnership with private investors.
32. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
33. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
34. Supporting predominantly commercial companies that
contribute to the economic development of the country.
35. Negotiating interest rates based on risks and other
investments.
36. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
11. Promoting investment in the ESCAP region of public and
private capital for development.
12. Utilizing available resources to finance development,
prioritizing projects contributing to the harmonious economic growth
of the region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
21. Promoting international trade to accelerate economic
development.
22. Formulating principles and regulations on international trade
and related economic development issues.
23. Negotiating multinational trade agreements.
24. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
16. Operational support through technical assistance to industries
and in-plant training programs.
17. Research, including feasibility studies on industry
requirements in developing countries.
18. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
16. Developing a national trade promotion strategy.
17. Establishing government institutions and services for
exporters.
18. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
19. To assist in the reconstruction and development of the
territories of the members, by facilitating the investment of capital
for productive purposes, including the recovery of economies
destroyed or disrupted by war, the reconversion of productive
facilities to peacetime needs, and the encouragement of the
development of productive facilities and resources in less developed
countries.
20. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
21. To promote the long-range balanced growth of international
trade and the maintenance of equilibrium in the balance of
payments, by encouraging international investment of the
productive resources of members, thereby assisting in raising
productivity, the standards of living, and conditions of labor in their
territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
37. Making investments in partnership with private investors.
38. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
39. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
40. Supporting predominantly commercial companies that
contribute to the economic development of the country.
41. Negotiating interest rates based on risks and other
investments.
42. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
13. Promoting investment in the ESCAP region of public and
private capital for development.
14. Utilizing available resources to finance development,
prioritizing projects contributing to the harmonious economic growth
of the region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
25. Promoting international trade to accelerate economic
development.
26. Formulating principles and regulations on international trade
and related economic development issues.
27. Negotiating multinational trade agreements.
28. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
19. Operational support through technical assistance to industries
and in-plant training programs.
20. Research, including feasibility studies on industry
requirements in developing countries.
21. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
19. Developing a national trade promotion strategy.
20. Establishing government institutions and services for
exporters.
21. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
22. To assist in the reconstruction and development of the
territories of the members, by facilitating the investment of capital
for productive purposes, including the recovery of economies
destroyed or disrupted by war, the reconversion of productive
facilities to peacetime needs, and the encouragement of the
development of productive facilities and resources in less developed
countries.
23. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
24. To promote the long-range balanced growth of international
trade and the maintenance of equilibrium in the balance of
payments, by encouraging international investment of the
productive resources of members, thereby assisting in raising
productivity, the standards of living, and conditions of labor in their
territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
43. Making investments in partnership with private investors.
44. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
45. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
46. Supporting predominantly commercial companies that
contribute to the economic development of the country.
47. Negotiating interest rates based on risks and other
investments.
48. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
15. Promoting investment in the ESCAP region of public and
private capital for development.
16. Utilizing available resources to finance development,
prioritizing projects contributing to the harmonious economic growth
of the region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
29. Promoting international trade to accelerate economic
development.
30. Formulating principles and regulations on international trade
and related economic development issues.
31. Negotiating multinational trade agreements.
32. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
22. Operational support through technical assistance to industries
and in-plant training programs.
23. Research, including feasibility studies on industry
requirements in developing countries.
24. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
22. Developing a national trade promotion strategy.
23. Establishing government institutions and services for
exporters.
24. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
25. To assist in the reconstruction and development of the
territories of the members, by facilitating the investment of capital
for productive purposes, including the recovery of economies
destroyed or disrupted by war, the reconversion of productive
facilities to peacetime needs, and the encouragement of the
development of productive facilities and resources in less developed
countries.
26. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
27. To promote the long-range balanced growth of international
trade and the maintenance of equilibrium in the balance of
payments, by encouraging international investment of the
productive resources of members, thereby assisting in raising
productivity, the standards of living, and conditions of labor in their
territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
49. Making investments in partnership with private investors.
50. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
51. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
52. Supporting predominantly commercial companies that
contribute to the economic development of the country.
53. Negotiating interest rates based on risks and other
investments.
54. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
17. Promoting investment in the ESCAP region of public and
private capital for development.
18. Utilizing available resources to finance development,
prioritizing projects contributing to the harmonious economic growth
of the region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
33. Promoting international trade to accelerate economic
development.
34. Formulating principles and regulations on international trade
and related economic development issues.
35. Negotiating multinational trade agreements.
36. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
25. Operational support through technical assistance to industries
and in-plant training programs.
26. Research, including feasibility studies on industry
requirements in developing countries.
27. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
25. Developing a national trade promotion strategy.
26. Establishing government institutions and services for
exporters.
27. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
28. To assist in the reconstruction and development of the
territories of the members, by facilitating the investment of capital
for productive purposes, including the recovery of economies
destroyed or disrupted by war, the reconversion of productive
facilities to peacetime needs, and the encouragement of the
development of productive facilities and resources in less developed
countries.
29. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
30. To promote the long-range balanced growth of international
trade and the maintenance of equilibrium in the balance of
payments, by encouraging international investment of the
productive resources of members, thereby assisting in raising
productivity, the standards of living, and conditions of labor in their
territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
55. Making investments in partnership with private investors.
56. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
57. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
58. Supporting predominantly commercial companies that
contribute to the economic development of the country.
59. Negotiating interest rates based on risks and other
investments.
60. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
19. Promoting investment in the ESCAP region of public and
private capital for development.
20. Utilizing available resources to finance development,
prioritizing projects contributing to the harmonious economic growth
of the region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
37. Promoting international trade to accelerate economic
development.
38. Formulating principles and regulations on international trade
and related economic development issues.
39. Negotiating multinational trade agreements.
40. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
28. Operational support through technical assistance to industries
and in-plant training programs.
29. Research, including feasibility studies on industry
requirements in developing countries.
30. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
28. Developing a national trade promotion strategy.
29. Establishing government institutions and services for
exporters.
30. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
31. To assist in the reconstruction and development of the
territories of the members, by facilitating the investment of capital
for productive purposes, including the recovery of economies
destroyed or disrupted by war, the reconversion of productive
facilities to peacetime needs, and the encouragement of the
development of productive facilities and resources in less developed
countries.
32. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
33. To promote the long-range balanced growth of international
trade and the maintenance of equilibrium in the balance of
payments, by encouraging international investment of the
productive resources of members, thereby assisting in raising
productivity, the standards of living, and conditions of labor in their
territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
61. Making investments in partnership with private investors.
62. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
63. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
64. Supporting predominantly commercial companies that
contribute to the economic development of the country.
65. Negotiating interest rates based on risks and other
investments.
66. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
21. Promoting investment in the ESCAP region of public and
private capital for development.
22. Utilizing available resources to finance development,
prioritizing projects contributing to the harmonious economic growth
of the region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
41. Promoting international trade to accelerate economic
development.
42. Formulating principles and regulations on international trade
and related economic development issues.
43. Negotiating multinational trade agreements.
44. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
31. Operational support through technical assistance to industries
and in-plant training programs.
32. Research, including feasibility studies on industry
requirements in developing countries.
33. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
31. Developing a national trade promotion strategy.
32. Establishing government institutions and services for
exporters.
33. Identifying market opportunities and promoting exports.
Purposes
The purposes of the bank, as laid down in its Articles of Agreement, are:
34. To assist in the reconstruction and development of the
territories of the members, by facilitating the investment of capital
for productive purposes, including the recovery of economies
destroyed or disrupted by war, the reconversion of productive
facilities to peacetime needs, and the encouragement of the
development of productive facilities and resources in less developed
countries.
35. To promote private foreign investment by guarantees or
participation in loans and other investments made by private
investors, and when private capital is not available on reasonable
terms, to supplement private investment by providing, on suitable
conditions, finance for productive purposes out of its own capital
funds raised by it and other resources.
36. To promote the long-range balanced growth of international
trade and the maintenance of equilibrium in the balance of
payments, by encouraging international investment of the
productive resources of members, thereby assisting in raising
productivity, the standards of living, and conditions of labor in their
territories.
Guiding Principles
In its lending operations, the bank is guided by certain policies formulated
based on the Articles of Agreement. First, the bank must accurately assess
the repayment prospects of the loans. For this reason, it must consider the
availability of natural resources and current productive plant capacity to
exploit the resources, and review the plant and the country's past debt
record. Secondly, the bank should lend only for specific projects that are
economically and technically sound and of high priority nature. As a
matter of general policy, it concentrates on lending for projects designed
to contribute directly to productive capacity and usually does not finance
projects of a social nature, such as education, housing, etc. Most bank
loans have been made for basic utilities, including power and transport,
which are prerequisites for economic development. Additionally, the bank
places significant emphasis on the proper management of the projects.
Thirdly, the bank lends only to enable a country to meet the foreign
exchange content of any project cost; it generally expects the borrowing
country to mobilize its domestic resources.
The Bank does not expect the borrowing country to spend the loan in a
particular country; in fact, it encourages borrowers to procure machinery
and goods for bank-financed projects in the cheapest possible market
consistent with quality performance. Fifthly, it is the Bank's policy to
maintain continuing relations with borrowers to check the progress of
projects and keep in touch with economic and financial developments in
borrowing countries. This also aids in the resolution of any problems that
might arise in the technical and administrative fields. Finally, the Bank
indirectly attaches special importance to the promotion of local private
enterprise.
Lending Programs
While the World Bank has traditionally financed all kinds of capital
infrastructure such as roads and railways, telecommunications, and ports
and power facilities, its development strategy also places an emphasis on
investments that can directly affect the well-being of the masses of poor
people in developing countries by integrating them as active partners in
the development process. Some time back, the Bank has stepped up its
lending for energy development; lending for power forms the largest part
of the Bank's energy programme, but commitments for oil and gas
developments have shown the greatest increases. Structural Adjustment
lending: The Bank, in response to the deteriorated prospects for the
developing countries during the 1980s, inaugurated a programme of
structural adjustment lending (SAL). This lending supports programmes of
specific policy changes and institutional reforms in developing countries
designed to achieve a more efficient use of resources and thereby: (a)
Contribute to a more sustainable balance of payments in the medium and
long term and to the maintenance of growth in the face of severe
constraints; and (b) Lay the basis for regaining momentum for future
growth. Special Action Programme: In 1983, the Bank initiated its Special
Action Programme (SAP), designed to increase assistance to countries that
were making efforts to cope with the exceptionally difficult economic
environment brought on by a global recession. The SAP, established for a
two-year period, was composed of financial measures, combined with
policy advice, to help countries implement adjustment measures and high-
priority projects needed to restore creditworthiness and growth. According
to the Bank, the SAP had been highly successful in meeting its objectives,
surpassing in most respects the expectations set for it. 8-loan and Export
Credit: In January 1983, the Executive Directors authorized the
establishment of a new set of co-financing instruments to help the Bank's
borrowers increase and stabilize flows of private capital on approved
terms by linking part of commercial bank flows to IBRD operations. These
instruments, which comprise the B-Loan pilot program, include three
options: (a) Direct Bank participation in the late maturities of a B-Loan; (b)
Bank guarantee of the late maturities, with the possibility of release from
all or a part of its share; and (c) Bank acceptance of a contingent
obligation to finance an element of deferred principal at the final maturity
of a loan with level debt-service payments with floating rate interest and
variable amounts of principal repayment. A fourth approach was also
approved by the Board - the prearranged sale of participations in Bank
loans arranged on commercial terms.
International Development Association
The International Development Association (IDA), an affiliate of the IBRD,
was established in 1960 to provide assistance for the same purpose as the
IBRD but primarily in the poorer developing nations and on terms that
would bear less heavily on their balance of payments than IBRD loans.
IDA's help is, therefore, focused on the very poor countries. The funds
used by the IDA, known as credits to differentiate them from IBRD loans,
come mostly in the shape of subscriptions, general replenishments from
IDA's more industrialized and advanced members, and transfers from the
net profits of the IBRD. The terms of IDA credits, made only to
governments, are ten-12 month grace periods, fifty-year maturities, and
no interest. The IDA offers 'tender loans' to member countries. Its object is
to provide loans to member countries on liberal terms insofar as they
relate to the rate of interest and the period of repayment. Another
attraction of the IDA loans is they can be repaid in the currency of the
member country.
Developing countries can avail themselves of IDA loans on very liberal
terms for projects that are not eligible for assistance from the World Bank
either because loans for such projects do not carry the guarantee of the
government of the borrowing country or because such projects do not
contribute directly and immediately to the productive capacity of the
borrowing country. Examples of such projects are water supply, urban
development, housing, slum clearance, education, sanitation and health
facilities, etc. In approving an IDA credit, three criteria are observed: (i)
Poverty test: IDA's help is limited to the poorest countries which continue
to face such severe handicap as high dependence on volatile primary
products markets, heavy debt servicing burdens, and often, rates of
population increase that outweigh the gains of production. (ii)
Performance test: In the absence of establishing objective criteria of
performance, these factors serve as the yardstick for an adequate
performance test: sound general economic policies and past success in
project execution. (iii) Project test: The purpose of the IDA is to strengthen
tender loans, not finance tender projects. IDA projects are appraised
according to the same standard as that applied to the bank projects - the
test essentially requires that the proposed projects yield economic and
financial returns that are sufficient to justify the use of scarce capital.
World Bank Assistance to India
India is one of the founder members of the IBRD and is one of the largest
beneficiaries of the IBRD-IDA assistance. Until China became a member of
the World Bank in 1980, India was the largest beneficiary of world bank
assistance. Now there are several larger beneficiaries than India. Over the
years, the roles of the world bank and the IDA almost reversed as regards
the assistance to India. In 1974-75, of the total IBRD-IDA resource to India,
IDA accounted for three-fourths and the World Bank for one-fourth. In
1998, the World Bank accounted for almost two-thirds and the IDA about
one-third of the total aid. This decline in the proportion of soft loans
significantly increases India's debt burden. India's share in the IDA's total
credit has declined over the years. Until 1979-80, IDA's assistance to India
accounted for, on average, about 40 percent of its total assistance.
Thereafter, there was a sharp decline in this share. Besides the aid crunch
IDA has been facing, China's entry into the World Bank has severely
affected the fund flow to India. Although the world bank assistance to
India is very large in absolute terms, the per capita assistance has been
low. India, with about a third of the world's poor, needs a significant
increase in concessional finance to accelerate the programs of poverty
relief and economic development.
An Analysis of IMF-World Bank
The contribution made by the IMF and World Bank in assisting the member
nations in different ways cannot be overlooked. Research shows that the
projects assisted by the World Bank group could make a significant impact
on the respective countries. IMF has played a crucial role in providing
international liquidity and in the structural adjustment programs. There is,
however, a significant gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the
developed countries, have not been paying adequate attention to the
needs of the developing nations. The goal of the Bretton Woods
conference was to establish a global economic and monetary system to
promote stable exchange rates, foster the growth of international trade,
and global movement of capital in the desired directions. At the time of
the establishment of these institutions, most of the developing countries
were colonies and, therefore, not represented at the Bretton Woods. The
primary concern of these institutions was, evidently, the central issues of
the major members, i.e., the developed countries, and "...there was an
almost inevitable lack of concern for the interests of developing
countries." Even after the developing countries have far outnumbered the
developed ones in the total membership of these institutions, the
dominance of the developed countries continues due to the voting system
that gives clear control to the large contributors.
However, as the South Commission observes, concern for developing
countries was not completely absent; the mandate of the World Bank
included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war-devastated Europe and
Japan received much more attention than the crying development needs
of the developing countries. The proposal for a Special United Nations
Fund for Economic Development (SUNFED), which would provide large-
scale aid on easy terms to developing countries, was rejected in the 1950s
mainly because developed countries objected to the United Nations
becoming involved in financial aid to developing countries. The view that
in the global management of balance of payments disequilibria, there
should be pressure to adjust on both surplus nations and deficit nations,
rather than only on those in deficit, was also ignored. In fact, Keynes'
original proposal for an International Clearing Union (the prototype for the
IMF) included the possibility of a penalty on surplus countries - one
percent of the surplus per month to encourage them to make
adjustments, too.
Again, very little could be done by the IMF in solving the global liquidity
problem of the developing nations in comparison with those of the
developed countries. Indeed, developing nations need much more
attention from multilateral institutions than the developed countries for
various reasons. The developed countries have the capacity for, and ready
access to, commercial borrowing whenever their reserves run short. The
United States, which has had the largest deficit among the developed
countries, has also had the option of running a permanent deficit because
other countries were content to hold dollars. The situation for the
developing countries is quite different. Due to their poor economic
conditions, the relative burden of their payments deficit is much greater
than that of the absolute burden; the absolute deficit itself has been
substantial. Not only is the economic borrowing capacity of these
countries limited, but accessibility has also been limited due to their poor
creditworthiness. It can be recalled here that, in the early 1990s when
India's currency reserves position was very critical, the sources of short-
term commercial borrowings dried up due to the fall in the credit rating. To
make matters worse, due to poor credit ratings, the developing nations
have had to pay an average interest rate about four times the rate applied
to the developed countries on commercial borrowings. Against this
background, the IMF system has been ironic as far as the developing
countries are concerned.
INTERNATIONAL FINANCE CORPORATION
The International Finance Corporation, an affiliate of the World Bank, was
established in 1956. Although membership in the World Bank is a
prerequisite for joining the IFC, the IFC is legally and financially a separate
entity. The company operates with its own administrative and legal staff
but relies on the World Bank for administrative and other services.
Project and Objectives
The IFC's mission is to contribute to the World Bank Group's overall goal of
reducing poverty and improving living standards by playing a leading role
in the development of a sustainable private sector. In partnership with
others, the IFC aims to deliver development impact through tools such as
loan and equity financing, mobilization of external capital, and provision of
advisory and technical assistance services. The primary objective is to
support the economic development of less developed countries by
promoting growth in their private sectors and mobilizing domestic and
foreign capital.
One distinguishing feature of the IFC is its commitment to providing
technical assistance to project sponsors to ensure the potential success of
their ventures. Additionally, the IFC offers policy support to member
governments to create an investment-friendly climate and encourage
productive domestic and foreign investment.
Primary Functions of Assistance
The main functions of IFC's assistance include:
67. Making investments in partnership with private investors.
68. Ensuring that IFC's investments do not exceed half of the
capital requirements of the company.
69. Setting a minimum investment threshold of $1,000,000 or its
equivalent with no upper limit.
70. Supporting predominantly commercial companies that
contribute to the economic development of the country.
71. Negotiating interest rates based on risks and other
investments.
72. Not seeking or accepting government guarantees for
repayment.
IFC and India
The IFC has been involved in various projects in India, particularly focusing
on areas such as capital markets development, direct foreign investment,
access to foreign markets, equity investments, and infrastructure. The
organization has decentralized its operations in India to accelerate project
evaluation, marking India as the first beneficiary of this decentralization.
ASIAN DEVELOPMENT BANK
The Asian Development Bank (ADB), established in December 1966,
operates under the United Nations Economic Commission for Asia and the
Far East (ECAFE). The ADB aims to foster the economic development of
Asian countries.
Objectives
The main objectives of the ADB are:
23. Promoting investment in the ESCAP region of public and
private capital for development.
24. Utilizing available resources to finance development,
prioritizing projects contributing to the harmonious economic growth
of the region.
In its 23rd Annual Meeting, the ADB highlighted priorities such as poverty
alleviation, environmental protection, strengthening support to the private
sector, and creating a policy framework for efficient human and capital
resource use.
One significant challenge faced by the ADB is a shortage of funds, with
Western donors increasingly focusing on the development of Eastern
Europe.
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD),
established in 1964, addresses the widening trade gap and dissatisfaction
of developing countries with the General Agreement on Tariffs and Trade
(GATT).
Functions
UNCTAD's main functions include:
45. Promoting international trade to accelerate economic
development.
46. Formulating principles and regulations on international trade
and related economic development issues.
47. Negotiating multinational trade agreements.
48. Making proposals for implementing its principles and
regulations.
UNCTAD operates based on principles such as the sovereign right of
countries to utilize their natural resources, equality of states, and non-
interference in internal affairs.
Functioning of UNCTAD
UNCTAD has played a crucial role in the development of the Generalized
System of Preferences (GSP), maritime shipping codes, international
programs for the least developed countries, and global aid targets.
Despite debates and disagreements, UNCTAD has been instrumental in
shaping international trade relations.
UNIDO
The United Nations Industrial Development Organization (UNIDO),
established in January 1967, focuses on promoting industrialization in
developing countries by mobilizing national and international resources.
Activities
UNIDO's activities include:
34. Operational support through technical assistance to industries
and in-plant training programs.
35. Research, including feasibility studies on industry
requirements in developing countries.
36. Coordination, involving organizing regional and international
meetings, seminars, and symposia.
UNIDO collaborates directly with industrial firms on an industry basis.
INTERNATIONAL TRADE CENTRE
The International Trade Centre (ITC), created in 1964 by GATT and
operated jointly with UNCTAD and WTO since 1968, serves as the focal
point in the United Nations for technical cooperation with developing
countries in trade promotion.
Roles
ITC advises developing countries on trade promotion strategies, including
marketing communications and individual promotional activities like trade
fairs, trade missions, and publications. It assists in:
34. Developing a national trade promotion strategy.
35. Establishing government institutions and services for
exporters.
36. Identifying market opportunities and promoting exports.
SUMMARY
Numerous international organizations, such as the IMF, World Bank, WTO,
ADB, UNCTAD, UNIDO, and ITC, significantly impact the global economy.
While these institutions have made significant contributions, concerns
persist about their responsiveness to the needs of developing countries.
India, as a founding member of the IMF, has been a major beneficiary of
assistance from the IBRD-IDA.
