Global Lending Institutions (HL IB Geography)

World Bank (WB)

• Founded in 1944 under the Bretton Woods Agreement, the International Bank for Reconstruction and Development—soon called the World Bank (WB)—has further expanded to an associated group of five development institutions called the World Bank Group (WBG)

• Headquartered in Washington, DC, its original loans helped rebuild countries devastated by World War II

• Now it is an international organisation that provides loans to developing countries with the overall aim of reducing poverty

• Currently, the WB has 189 member countries, and its operations are financed by member country contributions, borrowing in the capital markets and earnings from its investments

• The WB has two main branches: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)

• Loans are used for projects such as building schools and hospitals, improving literacy and agricultural reform

• As of 2022, the WBG identified 17 goals that it aims to achieve by 2030

• The top two are:

  • End extreme poverty by reducing the number of people living on less than $1.90 a day

  • Increase overall prosperity by increasing income in the lower 40% of every country in the world

• The WB provides financing, advice and other resources to developing countries in areas of education, public safety, health, etc.

• Often, other nations, organisations, and institutions partner with the WBG to sponsor development projects

• In 2017, the WB created the Human Capital Project to help countries invest and develop skills for its citizens to be productive and active contributors to their country's economy

• The project outlines that governments should invest in education, affordable childcare and increasing women's access in order to improve employment opportunities

Criticisms of the World Bank

• Some of the major criticisms include:

  • Loans are often tied to ‘conditionalities’ based on a model of western free markets

  • Some of the funded projects have had negative environmental and social impacts, including forced displacement of communities, destruction of ecosystems, and human rights violations

  • Criticised for its lack of transparency and accountability in its decision-making processes

  • Decision-making processes are influenced by major shareholders, particularly the United States, which lead to policies that benefit those countries rather than the receiving countries

• In response to criticism on its policies of economic development to reduce poverty, the WB has begun to engage more with stakeholders and communities to identify their needs and wants

International Monetary Fund (IMF)

• The International Monetary Fund (IMF) promotes global economic growth and financial stability by encouraging international trade to reduce poverty

• The International Monetary Fund (IMF) is sister to the World Bank and was founded in 1945 as part of the Bretton Woods agreement to bring financial stability to the world after World War II 

• Based in Washington, DC, the IMF helps currencies be exchanged freely and easily between 190 global member countries

• The IMF is funded by quota subscriptions, depending on the size of a member country's economy

• Quotas allow members to have enough foreign exchange to do business with the rest of the world

• The IMF collects vast amounts of data on national economies, international trade and the global economy and provides economic forecasts

• The IMF's principal function is to make loans to countries that are facing economic trouble to prevent or lessen a financial crisis

• The IMF provides advice and financial assistance to struggling members

• The IMF also issues grants to encourage a country to develop economic independence through education

Criticisms of the IMF

• The main criticism of the IMF has been for lending with imposed conditions, such as:

  • Telling a country how to run its economy

  • Making payback a priority on the loan

  • Forcing financial concerns ahead of social care

  • Opening up their economy to FDI and free trade

• Countries under IMF programmes are usually developing or emerging, or countries that have faced financial crises

New Development Bank (NDB)

• The New Development Bank (NDB) was originally known as the BRICS Development Bank and is a multilateral financial institution

• It was established in 2014 by the BRICS countries of Brazil, Russia, India, China and South Africa as an alternative to the World Bank and the IMF

• The NDB has its headquarters in Shanghai, China, along with regional offices in all BRICS member countries

• The NDB aims to finance sustainable development and infrastructure projects in BRICS member countries, developing countries and other emerging economies

• Since its launch, 4 other nations have become members:

  • Bangladesh

  • UAE

  • Egypt

  • Uruguay

How is the NDB different?

• Currently, the existing model of development is through improvement of a country's economic market

• The NDB argue that these policies are socially harmful, environmentally unsustainable and have led to a widening of inequality within and between countries

• The NDB aims to be transparent and accountable, along with being socially and environmentally sustainable and respectful of human rights whilst meeting the needs of poor and marginalised communities

What are the bank's focus areas?

• Prioritising infrastructure and sustainable development projects

• Supporting member countries to transition towards low-emission energy production and efficiency—they will not support coal-fired energy production

• Invest in sustainable, reliable, and accessible transport infrastructure projects that use technology to improve efficiency and reduce GHG emissions

• Supporting projects that improve, manage and generate access to clean drinking water and adequate sanitation

• Financing new and emerging technologies to mitigate the impact of emissions

• Investing in projects that conserve and restore key ecosystems, improve management of natural resources and reduce the impact of socio-economic activities on the environment

• Investing in projects that build, improve, or expand digital infrastructure, particularly in remote regions, to provide universal access and reduce online costs

• Supporting social projects such as building and modernising schools, hospitals, affordable housing, cultural heritage sites and other social services that support human development, quality of life and living standards

Criticisms of the NDB

• Critics have said that the NDB is still making the same mistakes as the financial institutions it was designed to replace

• Members have different or competing visions and these geo-politics prevent projects from being completed or started

  • India and China have border disputes and trade disagreements

  • China, Russia, and India compete for dominance

  • South Africa has been accused of corruption

• Many projects have only been discussed and not started or completed

• The NDB froze all negotiations with Russia over its invasion of Ukraine, which has reduced available funds