The World Bank Group

Villagers line up for cooking oil donated by local businessmen in Myanmar. (Adam Dean/Reuters)

Since its founding in 1944, the World Bank has evolved from a lender focused on European reconstruction into the preeminent international institution for economic development and poverty reduction.

Last updated October 8, 2013

Villagers line up for cooking oil donated by local businessmen in Myanmar. (Adam Dean/Reuters)
Current political and economic issues succinctly explained.


The World Bank Group is a family of five multilateral institutions engaged in a variety of economic development activities, whose overarching mission is global poverty reduction. Established by Western powers in 1944, the World Bank was originally tasked with rebuilding the decimated economies of post-war Europe. More than sixty years later, it has expanded its reach into nearly all of the world’s developing countries. The Bank currently maintains more than 1,800 projects aimed at poverty alleviation and the promotion of sustainable globalization.

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Dr. Jim Yong Kim, a U.S. public health expert and head of Dartmouth College, began a five-year term as president of the Bank in July 2012. Some critics claim Kim’s appointment encapsulates the Bank’s outmoded embrace of a Western-dominated order. Others suggest the Bank may have outlived its usefulness altogether, citing the dramatic increase in private capital flows available to the developing world. Supporters of the Bank contend that, if reformed, it can make an enduring contribution to global economic development as an arbiter of best practices.

Bretton Woods

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The World Bank, along with its sister organization, the International Monetary Fund, was created at the Bretton Woods Conference in New Hampshire in 1944. The Allied powers, led by the United States and the UK, created these twin multilateral organizations to restore European prosperity and prevent a recurrence of the economic malaise of the 1920s and 1930s that helped fuel the rise of totalitarianism. The IMF—which, through tacit agreement, would be led by a European—was charged with managing the global regime of exchange rates and balance of payments. The Bank—to be led by an American—would provide member countries with post-war reconstruction loans. While the Fund would focus on "firefighting" short-term macroeconomic problems, the Bank would concentrate on long-term, on-the-ground development.

Over the past several decades, the Bank’s primary focus has shifted from partnering with middle-income nations on growth-related programs and trade liberalization, toward an increasing emphasis on global poverty alleviation. These efforts take place in the world’s poorest countries—particularly those in Africa—and in middle-income countries—such as China and India—where 70 percent of world’s poor reside. In 2013, the Bank set a goal to end extreme poverty, experienced by people living on $1.25 or less per day, by 2030. Other priorities for the Bank include post-conflict nations, the Arab world, and global commons issues such as international public health and the environment.

Organization and Operations

The World Bank Group is composed of five separate institutions: the International Bank for Reconstruction and Development (IBRD); the International Development Association (IDA); the International Finance Corporation; the Multilateral Investment Guarantee Agency; and the International Centre for Settlement of Investment Disputes. Each agency is owned and operated as a cooperative by its respective member countries, which in most cases overlap.

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Together, the IBRD and the IDA are commonly referred to as the World Bank. As of 2012, the Bank’s five largest shareholders—out of its 187 members—were France, Germany, Japan, the UK, and the United States.

Ultimate policymaking authority at the Bank rests with the Board of Governors, often made up of senior finance or development officials from member countries. The Board of Governors, in turn, delegates certain powers to the Board of Directors, which is composed of twenty-five executives and the president of the World Bank Group.

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The International Bank for Reconstruction and Development­

The IBRD was established in 1944 as the Bank’s charter institution. Through loans, guarantees, and other services, the IBRD works with middle-income and credit-worthy low-income nations to fight poverty. Projects span the globe and vary from providing immunizations in Argentina, to feeding schoolchildren in El Salvador, to generating hydropower in Pakistan.

The International Development Association

As a complement to the IBRD, the IDA was established in 1960 to promote broad-based development work in the world’s poorest countries by offering interest-free credits and grants. The IDA’s programs target eighty-one countries, of which thirty-nine are in Africa, with a focus on education, health, and sustainable environmental practices.

Criticism of ’Washington Consensus’

The World Bank, like its IMF sibling, has been the subject of much criticism over the years. In his 2006 book The White Man’s Burden, former World Bank economist William Easterly delivers a broad indictment of Western efforts at poverty reduction. "The plan to end world poverty shows all the pretensions of utopian social engineering," he writes. The Bank’s attempts to rapidly impose free markets on the developing world in the 1980s and 90s, otherwise known as economic "shock therapy," produced a "record of failure" in Latin America, Africa, and former Soviet countries. Easterly says client nations would be better served by homegrown, piecemeal reforms developed from the bottom-up.

Joseph Stiglitz, perhaps the most vocal critic of the World Bank, resigned from his position as the institution’s chief economist in 1999, citing his growing opposition to the Bank’s advocacy of free-market fundamentalism for many developing countries. Stiglitz argued the economic reforms the IMF and World Bank often required as conditions for their lending—the so-called Washington Consensus (i.e., fiscal austerity, high interest rates, trade liberalization, privatization, and open capital markets)—have often been counterproductive for target economies and devastating for their populations. In particular, he links indiscriminate lending conditionality to the onset of financial crises in East Asia (1997) and Argentina (1999).

Post-Conflict Success Stories

The World Bank is, at the same time, revered by many as the preeminent brain trust in development economics. "You could certainly find brilliant development economists outside the Bank," writes CFR’s Sebastian Mallaby in The World’s Banker, "but they tended to be scattered about the famous campuses; nobody could match the Bank’s concentration of talent." As a result, he says, the Bank’s annual World Development Report often establishes the accepted wisdom on a given development topic.

The World Bank has had several successful interventions, in the estimation of many observers. For Mallaby, the 1995 experience in Bosnia was a particular victory for the Bank, which demonstrated its ability to move quickly into post-crisis reconstruction and deliver results for important clients. He writes that "Bosnia came to suggest a route out of the Bank’s deepest long-term difficulty": the potential for a slow-moving bureaucracy to rob it of big clients—namely China, India, Brazil, and South Africa—that increasingly have access to private capital markets.

In The World Bank: Its First Half Century, Mahn-Je Kim offers the Bank’s multi-decade involvement in South Korea as another triumph. The World Bank provided almost half of Korea’s public funding in the high-growth years of the 1970s and 80s. "Among the institutions and nations that provided public loans to Korea," he writes, "the Bank was the most important in terms of both the amount and number." He adds that the Bank helped transfer valuable management techniques to Korea, and was "critical" in the country’s ability to access other sources of foreign financing.

Rise of the BRICS

Some critics question whether there is still a niche for the World Bank in the modern architecture of global finance, particularly given the ascendance of large emerging economies like the BRICS—Brazil, Russia, India, China, and South Africa. "The financial markets of today bear virtually no similarity to those of 1944," writes Jessica Einhorn for Foreign Affairs. "The [World Bank] was created to provide credit to its member countries, and in those days, that credit was often the only kind available to them. Those days are over." According to the Institute for International Finance, private capital flows to emerging markets such as China and India topped $900 billion in 2011. By contrast, World Bank disbursements to this group of economies amounted to just $8 billion for the year through June 2011.

This financial reality has led some to recommend the Bank narrow its focus to countries that lack recourse to private markets. "If the World Bank wants to have a significant role on the lending side, it’s going to have to be in the poorest of the poor countries or war-torn countries where the private sector has been effectively scared off," said CFR’s Benn Steil in an interview.

In March 2012, former World Bank president Robert Zoellick offered a different take after BRICS leaders floated the idea of establishing their own development bank. "There is a view in some quarters in developed countries that the Bank should work with the poorest countries and not with developing countries. I’m an adamant opponent of that view," he said. "If you believe in a multilateral system then India and Brazil are going to become more important over time and we need to draw from their knowledge and, in time, their finances."

The Bank needs to reform its voting structure and adopt a competitive election process in order to increase its legitimacy, writes CFR’s Thomas Bollyky in an April 2012 New York Times editorial. "Having an American at the helm of the bank partly served to reassure Wall Street, originally the main supplier of the bank’s capital," he says. "With the globalization of capital markets, this justification ... is long outdated." He recommends the Bank embrace a voting system that requires leaders to win a majority of country votes, not simply those of the primary shareholders.

An Ideas Bank

In a 2010 strategy document, the World Bank outlined its five comparative advantages: its global presence, its repository of best practices, its financial acumen, its leadership in global public goods, and its role as an international development catalyst. The Carnegie Endowment’s Vikram Nehru, a former World Bank chief economist for East Asia, told CFR that while the Bank has always represented a tiny share of public investment in most countries, its strength comes by leveraging its lending with ideas. For instance, he says, China has used the Bank to finance a host of small projects (i.e., $50 million) with the sole intention of learning best practices.

"The Bank wants to be used that way," he says. "It’s not meant to be an organization that sort of finances development; it’s meant to be an organization that stimulates development through the transfer of ideas."

CFR’s Steil says that although a majority of the world’s poor live in middle-income countries like China, "at some point they will need to assume responsibility for their own people given their economic growth." He notes that China’s $3.2 trillion in reserves "dwarfs anything the World Bank could ever bring to bear, so its future value may be in providing advisory assistance based on a remarkable database of past successes and failures on specific projects."

Nehru says that to the extent the world’s development issues become increasingly global in nature, such as climate change, migration, and epidemics, there will be an enduring role for the World Bank to play. In the March 2012 issue of Foreign Affairs, Zoellick writes, "the multilateral bodies offer a thin but vital tissue connecting sovereign nations that pursue common interests. The pragmatic approach, then, is to make these institutions, with all their imperfections, work better."


Resources Up

The World Bank Group unveiled a new strategy [PDF] in October 2013 to reposition itself as a "solutions" bank, providing both knowledge and financing.

The Washington Post's "On Leadership" video series interviews President Jim Yong Kim ahead of the 2014 spring meeting in Washington, D.C.

In The Battle of Bretton Woods, CFR's Benn Steil explains how the blueprint for the postwar economic order was drawn.

This CFR backgrounder profiles the International Monetary Fund, the Bank's sister organization.

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