The World Bank

IBRD & IDA : Working for a World Free of Poverty

Presented by Neetha Abraham and Christina Eaves

Agenda

I. Introduction to the World BankA. Bretton WoodsB. The World BankC. The World Bank GroupD. The Structure

II. Anti-CorruptionA. Taking the lead since 1999B. Enforcing Anti-Corruption

III. The Paul Wolfowitz ScandalA. The RulesB. The ContradictionC. Guilty

VI. What’s Next for the World BankA. Millennium Development GoalsB. A New President

X. Recommendations

Bretton Woods

• In response to post-war reconstruction and to discuss the future of international economic cooperation

• In July of 1944, representatives from 44 countries met at Bretton Woods, New Hampshire.

• Creation of two institutions, 1.International Monetary Fund (IMF)

2.International Bank for Reconstruction and Development;

a.k.a. the “World Bank.”

The World Bank

• The Bank’s initial goal was to assist in the reconstruction of post-war Europe

• Now, the Bank makes development loans to developing countries – Goal is to reduce poverty by financing and

assisting in numerous projects such as healthcare, education, infrastructure, communications, and other like projects

The World Bank Group

1. International Bank for Reconstruction and Development (IBRD)– Est. 1946, “aims to reduce poverty in middle-income and creditworthy

poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services”

2. International Development Association (IDA) – Est.1960, interest free loans and grants

3. International Finance Corporation (IFC) – Est.1956, Private sector arm of the World Bank

4. Multilateral Investment Guarantee Agency (MIGA)– Est.1988, Promotes Foreign Direct Investment in developing countries

5. International Centre for Settlement of Investment Disputes (ICSID)– Est. 1966, facilitate the settlement of investment disputes between

governments and foreign investorswww.worldbank.org

Structure of the World Bank

• Headquartered in Washington D.C.

• Over 100 offices all over the world

• 185 member countries

• Membership of the IMF is required

• 5 Largest shareholders: France, Germany, Japan, UK, and US

Board of Governors

• Made of up representatives from member countries– Typically, the representatives are ministers of

finance or ministers of development

• Meet annually to review policies and review membership

• Ultimate policy makers

• Elect a Board of Directors every 2 years

Board of Directors

• 24 members of the Board (5 from the largest shareholders, 19 to cover the remaining geography)

• President of the World Bank serves as the Chairman of the Board

• General operations• Meet twice a week • According to the Charter, the member with the

greatest # of shares, chooses the president.• The president is, traditionally, a U.S. citizen and

is the chairman of the Board.

Anti-Corruption

The Bank has identified corruption asamong the greatest obstacles to economicand social development.

The World Bank believes that an effectiveanticorruption strategy builds on five keyelements:

1. Increasing Political Accountability

• Political accountability refers to the constraints placed on the behavior of public officials by organizations and constituencies with the power to apply sanctions on them.  As political accountability increases, the costs to public officials of taking decisions that benefit their private interests at the expense of the broader public interest also increase, thus working as a deterrent/disincentive to corrupt practices. Accountability rests largely on the effectiveness of the sanctions and the capacity of accountability institutions to monitor the actions, decisions, and private interests of public officials. 

2. Strengthening Civil Society Participation

• As stakeholders in good governance and institutions mediating between the state and the public, the organizations that comprise “civil society” – citizen groups, nongovernmental organizations, trade unions, business associations, think tanks, academia, religious organizations and last but not least media – can have an important role to play in constraining corruption.  This is true at the country level as well as internationally.

3. Creating a Competitive Private Sector

• The degree to which powerful elites influence decisionsand policy-making of the state (state capture) constraintsthe implementation of a fair, competitive, honest andtransparent private sector and thus hinders broad-based economicdevelopment. The ability of powerful economic interests to capture thestate can be constrained by:

– Economic policy liberalization – Enhancing greater competition – Regulatory reform – Good corporate governance – Promoting business associations, trade unions, and concerned parties – Transnational cooperation

4. Institutional Restraints on Power

• The institutional design of the state can be an important mechanism in checking corruption. Of particular importance is the effective development of institutional restraints within the state which is most effectively achieved through some degree of separation of powers and establishment of cross cutting oversight responsibilities among state institutions. Effective constraints by state institutions on each other can diminish opportunities for the abuse of power and penalize abuses if they occur.

5. Improving Public Sector Management

• The fifth building block of an anti-corruption strategyconsists of reforms in the internal management of publicresources and administration to reduce opportunities andincentives for corruption. Reforming public sectormanagement and public finance requires: 

– A meritoric civil service with monetized, adequate pay – Enhancing transparency and accountability in budget

management. – Enhancing transparency and accountability in tax and customs– Policy reforms in sectoral service delivery– Decentralization with accountability

Taking the lead since 1999

• Since 1999, • Over 2,000 cases investigated and closed by the Institutional Integrity department.

• Sanctioned over 300 firms and individuals for fraud and corruption in Bank-financed projects.

• The number of serious allegations within the World Bank is less than 1%

Enforcing Anti-Corruption• Chad: Loans to Chad were suspended on the basis that the

government had breached an agreement with the Bank.• Kenya: Concerned about corruption in the Kibaki government of

Kenya, the Bank would not clear delayed loans of $265 million until it is convinced the government was dealing with the problem. It resulted in the resignation of three ministers.

• Congo: Wolfowitz had read a newspaper report about the Congolese president, Denis Sassou-Nguesso, and his extravagant hotel bills while on a trip to New York. Additionally, he was informed that KPMG, the firm that audits Congo's state-run oil company, had refused for three years, to sign off on its financial statements. Wolfowitz decided to hold off on Bank-funding, even thought the IMF decided that the Congo deserved the debt relief.

Enforcing Anti-Corruption

• India: The Bank has held up over $1 billion in health loans due to corruption concerns.

• Bangladesh: The Bank has cancelled road contracts, health, nutrition and municipal services projects, due to corrupt bidding practices.

• Uzbekistan: The Bank announced in March that it would stop making new loans to Uzbekistan.

Internal Corruption

Corruption practices may be associated with more than 20% of the funds disbursed by World Bank

Eg:• AGETIP program in Africa• Healthcare projects in India• Lahmeyer International Case• Why it Happens?• Bottlenecks in investigation process within World

Bank• Misinterpretation of the World Bank mission

Statement

The Wolfowitz Scandal

• In 2005, Paul Wolfowitz was appointed by the Bush administration to head the World Bank Group.

• “0% tolerance for corruption• On May 18, 2007, Paul Wolfowitz, the

president of the World Bank retired.• Prior to his appointment as president

of the World Bank, Wolfowitz had dated Shaha Riza, a World Bank employee.

The Rules

• Staff Rule 4.01, Paragraph 5.02, the World Bank’s policy is that “neither person may supervise the other, directly or indirectly, and their duties should not be likely to bring them into routine professional contact.”www.wsj.com

• The ethics committee at the World Bank had reviewed the matter and recommended that Riza be “seconded” to another organization; the U.S. State Department.

The Contradiction

• Wolfowitz had authorized a significant pay raise of approximately $40,000.00 to her prior to her departure from the World Bank.

• This raise was combined with another raise for a total annual salary of $193,000.00 tax-free.

• In comparison to her boss, Condoleeza Rice at the State Department earns $186,600.00 before taxes.

Dossani, Sameer; Wolfowitz Scandal Takes Bank Hypocrisy to New Heights, Foreign Policy In Focus;www.fpif.orgApril 20, 2007

Guilty

• Alison Cave, the Chair of the Staff Association, stated said that Wolfowitz “must acknowledge that his conduct has compromised the integrity and effectiveness of the World Bank Group and has destroyed the staff's trust in his leadership. He must act honorably and resign.”

• An investigative committee assigned to the matter, declared that Wolfowitz was guilty due to a conflict of interest.

What’s Next for the World Bank?

Millennium Development GoalsTargets and Goals set for 20151. Reducing Poverty and Hunger—global poverty is projected to fall

to 12 percent

2. Educating All Children—ensure that all children complete primary education.

3. Empowering Women—eliminate gender disparity in primary and secondary education.

4. Saving Children—reduce the under 5 mortality rate.

www.web.worldbank.org “Millennium Development Goals”

Millennium Development Goals

5. Caring for Mothers—reduce the maternal mortality rate.

6. Combating Diseases—such as AIDS/HIV, Tuberculosis, malaria, and other major diseases.

7. Using Resources Wisely—improvements in slum dwellings, create sustainable access to drinking water, and sustainable access to basic sanitation.

8. Working Together—make available technological advancements in information and communication. Allow affordable access to essential drugs in developing countries. Address the particular need of developing countries.

www.web.worldbank.org “Millennium Development Goals”

A New President

Robert Zoelick• On May 30, 2007, it was announced that

Robert Zoellick has been nominated to take over the presidency of the World Bank.

• Zoellick is currently the vice president at Goldman Sachs.

• He has previously worked as a U.S. trade representative and is a former Deputy Secretary of State.

Aversa, Jeannine, “Zoellick Must Restore Calm at the World Bank,” www.forbes.com (May 30, 2007)

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Questions?