DEVELOPMENT BANKS : The World Bank
The "World Bank" is the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD has two affiliates, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). The Bank, the IFC, and the MIGA are sometimes referred to as the "World Bank Group."45
International Bank for Reconstruction and Development
The IBRD was organized in 1945 along with the IMF to aid in rebuilding the world economy. It is owned by the governments of 151 countries, and its capital is subscribed by those governments; it provides funds to borrowers by borrowing funds in the world capital markets and from the proceeds of loan repayments as well as retained earnings. At its founding, the bank's major objective was to serve as an international financing facility to function in reconstruction and development. With the Marshall Plan providing the impetus for European reconstruction, the bank was able to turn its efforts toward the developing countries.
Generally, the IBRD lends money to a government for the purpose of developing that country's economic infrastructure, such as roads and power-generating facilities. Funds are directed toward developing countries at more advanced stages of economic and social growth. Funds are lent only to members of the IMF, usually when private capital is unavailable at reasonable terms. Loans generally have a grace period of five years and are repayable over a period of fifteen or fewer years.
The projects receiving IBRD assistance usually require importing heavy industrial equipment, and this provides an export market for many U.S. goods. Generally, bank loans are made to cover only import needs in foreign convertible currencies and must be repaid in those currencies at long-term rates.
An example of an IBRD loan is a $30 million loan to the Dominican Republic, approved in 1989.
The government will be assisted in formulating and implementing an effective and comprehensive strategy for the development of new industrial free zones and the expansion of existing ones; reducing unemployment, increasing foreign-exchange earnings, and strengthening backward linkages with the domestic economy; alleviating scarcity in term financing; and improving the capacity of institutions involved in financing, regulating, and promoting free zones. Cofinancing, in the amount of $1.4 million, is expected.46
The World Bank has special operational emphases, including environmental and women's issues. Given that the Bank's primary mission is to support the quality of life of people in developing member countries, it is easy to see why environmental and women's issues are receiving increasing attention. On the environmental side, the Bank is concerned that its development funds are being used in the recipient countries in an environmentally responsible way. Internal concerns, as well as pressure by external groups, are leading to significant research and projects relating to the environment.
The women's issues category, specifically known as Women in Development (WID), is part of a larger emphasis on human resources. The importance of improving human capital and improving the welfare of families is perceived as a key aspect of development. The WID initiative was established in 1988, and it is oriented to increasing women's productivity and income. Bank lending for women's issues is most pronounced in education; population, health, and nutrition; and agriculture.
International Development Association
The IDA was formed in i960 as a part of the World Bank Group to provide financial support to LDCs on a more liberal basis than could be offered by the IBRD. The IDA has 137 member countries, although all members of the IBRD are free to join the IDA. IDA's funds come from subscriptions from its developed members and from the earnings of the IBRD. Credit terms usually are extended to 40 to 50 years with no interest. Repayment begins after a ten-year grace period and can be paid in the local currency, as long as it is convertible. Loans are made only to the poorest countries in the world, those with an annual per capita gross national product of $480 or less. More than 40 countries are eligible for IDA financing.
An example of an IDA project is an $8.3 million loan to Tanzania approved in 1989 to implement the first stage in the longer-term process of rehabilitating the country's agricultural-research system. Cofinancing is ex-
pected from several countries as well as another multilateral lending institution.47
Although the IDA's resources are separate from the IBRD, it has no separate staff. Loans are made for the same types of projects as those carried out by the IBRD, but at easier and more favorable credit terms.
As mentioned earlier, World Bank/IDA assistance historically has been for developing infrastructure. The present emphasis seems to be on helping the masses of poor people in the developing countries become more productive and take an active part in the development process. Greater emphasis is being placed on improving urban living conditions and increasing productivity of small industries.
International Finance Corporation
The IFC was established in 1956. There are 133 countries that are members of the IFC, and it is legally and financially separate from the IBRD, although the IBRD provides some administrative and other services to the IFC. The IFC's main responsibilities are: (1) to provide risk capital in the form of equity and long-term loans for productive private enterprises in association with private investors and management; (2) to encourage the development of local capital markets by carrying out standby and underwriting arrangements; and (3) to stimulate the international flow of capital by providing financial and technical assistance to privately controlled finance companies. Loans are made to private firms in the developing member countries and are usually for a period of seven to twelve years.
The key feature of the IFC is that its loans are all made to private enterprises and its investments are made in conjunction with private business. In addition to funds contributed by IFC, funds also are contributed to the same projects by local and foreign investors.
IFC investments are for the establishment of new enterprises as well as for the expansion and modernization of existing ones. They cover a wide range of projects, such as steel, textile production, mining, manufacturing, machinery production, food processing, tourism, and local development finance companies. Some projects are wholly locally owned, whereas others are joint ventures between investors in developing and developed countries. In a few cases, joint ventures are formed between investors of two or more developing countries. The IFC has also been instrumental in helping to develop emerging capital markets.
The Multilateral Investment Guarantee Agency (MIGA)
The MIGA was established in 1988 to encourage equity investment and other direct investment flows to developing countries by offering investors a variety of different services. The MIGA offers guarantees against noncommercial risks; advises developing member governments on the design and implementation of policies, programs, and procedures related to foreign investments; and sponsors a dialogue between the international business community and host govern-
ments on investment issues.48 Because the MIGA is so new, its real contribution to the promotion of investment flows is still unclear.
International Bank for Reconstruction and Development
The IBRD was organized in 1945 along with the IMF to aid in rebuilding the world economy. It is owned by the governments of 151 countries, and its capital is subscribed by those governments; it provides funds to borrowers by borrowing funds in the world capital markets and from the proceeds of loan repayments as well as retained earnings. At its founding, the bank's major objective was to serve as an international financing facility to function in reconstruction and development. With the Marshall Plan providing the impetus for European reconstruction, the bank was able to turn its efforts toward the developing countries.
Generally, the IBRD lends money to a government for the purpose of developing that country's economic infrastructure, such as roads and power-generating facilities. Funds are directed toward developing countries at more advanced stages of economic and social growth. Funds are lent only to members of the IMF, usually when private capital is unavailable at reasonable terms. Loans generally have a grace period of five years and are repayable over a period of fifteen or fewer years.
The projects receiving IBRD assistance usually require importing heavy industrial equipment, and this provides an export market for many U.S. goods. Generally, bank loans are made to cover only import needs in foreign convertible currencies and must be repaid in those currencies at long-term rates.
An example of an IBRD loan is a $30 million loan to the Dominican Republic, approved in 1989.
The government will be assisted in formulating and implementing an effective and comprehensive strategy for the development of new industrial free zones and the expansion of existing ones; reducing unemployment, increasing foreign-exchange earnings, and strengthening backward linkages with the domestic economy; alleviating scarcity in term financing; and improving the capacity of institutions involved in financing, regulating, and promoting free zones. Cofinancing, in the amount of $1.4 million, is expected.46
The World Bank has special operational emphases, including environmental and women's issues. Given that the Bank's primary mission is to support the quality of life of people in developing member countries, it is easy to see why environmental and women's issues are receiving increasing attention. On the environmental side, the Bank is concerned that its development funds are being used in the recipient countries in an environmentally responsible way. Internal concerns, as well as pressure by external groups, are leading to significant research and projects relating to the environment.
The women's issues category, specifically known as Women in Development (WID), is part of a larger emphasis on human resources. The importance of improving human capital and improving the welfare of families is perceived as a key aspect of development. The WID initiative was established in 1988, and it is oriented to increasing women's productivity and income. Bank lending for women's issues is most pronounced in education; population, health, and nutrition; and agriculture.
International Development Association
The IDA was formed in i960 as a part of the World Bank Group to provide financial support to LDCs on a more liberal basis than could be offered by the IBRD. The IDA has 137 member countries, although all members of the IBRD are free to join the IDA. IDA's funds come from subscriptions from its developed members and from the earnings of the IBRD. Credit terms usually are extended to 40 to 50 years with no interest. Repayment begins after a ten-year grace period and can be paid in the local currency, as long as it is convertible. Loans are made only to the poorest countries in the world, those with an annual per capita gross national product of $480 or less. More than 40 countries are eligible for IDA financing.
An example of an IDA project is an $8.3 million loan to Tanzania approved in 1989 to implement the first stage in the longer-term process of rehabilitating the country's agricultural-research system. Cofinancing is ex-
pected from several countries as well as another multilateral lending institution.47
Although the IDA's resources are separate from the IBRD, it has no separate staff. Loans are made for the same types of projects as those carried out by the IBRD, but at easier and more favorable credit terms.
As mentioned earlier, World Bank/IDA assistance historically has been for developing infrastructure. The present emphasis seems to be on helping the masses of poor people in the developing countries become more productive and take an active part in the development process. Greater emphasis is being placed on improving urban living conditions and increasing productivity of small industries.
International Finance Corporation
The IFC was established in 1956. There are 133 countries that are members of the IFC, and it is legally and financially separate from the IBRD, although the IBRD provides some administrative and other services to the IFC. The IFC's main responsibilities are: (1) to provide risk capital in the form of equity and long-term loans for productive private enterprises in association with private investors and management; (2) to encourage the development of local capital markets by carrying out standby and underwriting arrangements; and (3) to stimulate the international flow of capital by providing financial and technical assistance to privately controlled finance companies. Loans are made to private firms in the developing member countries and are usually for a period of seven to twelve years.
The key feature of the IFC is that its loans are all made to private enterprises and its investments are made in conjunction with private business. In addition to funds contributed by IFC, funds also are contributed to the same projects by local and foreign investors.
IFC investments are for the establishment of new enterprises as well as for the expansion and modernization of existing ones. They cover a wide range of projects, such as steel, textile production, mining, manufacturing, machinery production, food processing, tourism, and local development finance companies. Some projects are wholly locally owned, whereas others are joint ventures between investors in developing and developed countries. In a few cases, joint ventures are formed between investors of two or more developing countries. The IFC has also been instrumental in helping to develop emerging capital markets.
The Multilateral Investment Guarantee Agency (MIGA)
The MIGA was established in 1988 to encourage equity investment and other direct investment flows to developing countries by offering investors a variety of different services. The MIGA offers guarantees against noncommercial risks; advises developing member governments on the design and implementation of policies, programs, and procedures related to foreign investments; and sponsors a dialogue between the international business community and host govern-
ments on investment issues.48 Because the MIGA is so new, its real contribution to the promotion of investment flows is still unclear.
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