Eighteen Questions and Answers About the World Bank

This paper provides background information about World Bank borrowing and lending activities and about U.S. participation in the Bank. Among other matters, it discusses where the World Bank borrows its funds, the amounts contributed by the United States and other countries, and changes i n World Bank priorities and loan policy.

Congressional Research Service The Library of Congress Washington, D.C. 20540 EIGHTEEN QUESTIONS A N D ANSWERS ABOUT THE WORLD BANK J o n a t h a n E. S a n f o r d A n a l y s t i n I n t e r n a t i o n a l P o l i t i c a l Economy F o r e i g n A f f a i r s and N a t i o n a l D e f e n s e D i v i s i o n J u n e 2 7 , 1986 ABSTRACT T h i s p a p e r p r o v i d e s background i n f o r m a t i o n a b o u t World Bank borrowing and l e n d i n g a c t i v i t i e s and a b o u t U.S. p a r t i c i p a t i o n i n t h e Bank. Among o t h e r m a t t e r s , i t d i s c u s s e s where t h e World Bank borrows i t s f u n d s , t h e amounts c o n t r i b u t e d by t h e United S t a t e s and o t h e r c o u n t r i e s , and c h a n g e s i n World Bank p r i o r i t i e s and l o a n p o l i c y . CONTENTS Overview: Some Background I n f o r m a t i o n on t h e World Bank........... 1 I. World Bank Borrowing A c t i v i t i e s 4 1. Where d o e s t h e World Bank o b t a i n t h e money i t l e n d s ? . . . . . . . . . 2. How much d o e s t h e World Bank borrow e a c h y e a r ? How l a r g e i s t h e World Bank's o u t s t a n d i n g d e b t ? 3. How much d o e s t h e World Bank borrow from governments ( i n c l u d i n g c e n t r a l b a n k s ) compared t o p r i v a t e c a p i t a l m a r k e t s ? . . . . . . 7 4. How much h a s t h e Bank borrowed i n t h e U n i t e d S t a t e s i n r e c e n t 9 years? 5. Why d o e s t h e World Bank, o f t e n f o r prolonged p e r i o d s , s t a y o u t of c e r t a i n c a p i t a l m a r k e t s ? 6. 7. 8. ............. 4 ...................................................... ........................ 11 Are t h e f u n d s t h e Bank borrows earmarked f o r a n y p a r t i c u l a r l o a n , p r o j e c t , o r d e v e l o p i n g c o u n t r y ? . . ...................... 11 How d o e s t h e Bank d e c i d e which c u r r e n c i e s t o borrow? What c o n s i d e r a t i o n i s g i v e n t o p o t e n t i a l l o s s e s from exchange r a t e f l u c t u a t i o n s ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 How s e c u r e a r e l o a n s made t o t h e World Bank? What p r o t e c t i o n s a r e o f f e r e d t o a World Bank b o n d h o l d e r ? How l i k e l y i s i t t h a t c a l l a b l e c a p i t a l w i l l be c a l l e d ? . . . . . . . 13 11. F i n a n c i a l O p e r a t i o n s 9. 10. From what s o u r c e s d o e s t h e Bank pay s t a f f and c o v e r o t h e r a d m i n i s t r a t i v e and o p e r a t i n g c o s t s ? . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Why d o e s t h e World Bank keep l a r g e amounts of money on hand a s l i q u i d resources? Where d o e s i t come from? What c u r r e n c i e s a r e held?......................................... 18 111. Lending O p e r a t i o n s 11. 12. Where does t h e World Bank make most of i t s l o a n s and what k i n d s of a c t i v i t i e s does t h e World Bank finance?........ How does t h e World Bank d e c i d e what l o a n s t o make? How does i t p r e p a r e and monitor i t s l o a n s ? How does i t know i t s funds a r e being used f o r t h e i r intended purpose? 19 .... 2 4 13. How much i n t e r e s t does t h e World Bank charge f o r i t s l o a n s ? . . 27 14. How much h a s t h e World Bank l e n t t o communist c o u n t r i e s ? . . . . . 29 15. How s i m i l a r a r e t h e c o u n t r y p a t t e r n s f o r World Bank l e n d i n g and f o r U.S. b i l a t e r a l economic aid?......................... 30 IV. 16. 17. 18. U.S. P a r t i c i p a t i o n i n t h e World Bank How much have t h e United S t a t e s and t h e o t h e r member c o u n t r i e s c o n t r i b u t e d t o t h e World Bank and i t s a f f i l i a t e s ? . . 32 How d o e s t h e United S t a t e s make p o l i c y towards t h e World Bank?.,..,............................................ 34 What i s U.S. p o l i c y towards t h e World Bank and t h e o t h e r m u l t i l a t e r a l development agencies?............. 35 EIGHTEEN QUESTIONS AND ANSWERS ABOUT THE WORLD BANK OVERVIEW: SOME BACKGROUND INFORMATION ON THE WORLD BANK The World Bank i s an i n t e r n a t i o n a l agency which f i n a n c e s d e v e l o p ment a c t i v i t i e s i n low-income c o u n t r i e s u s i n g money borrowed i n i n t e r n a t i o n a l c a p i t a l m a r k e t s o r c o n t r i b u t e d by t h e governments o f more d e v e l o p e d c o u n t r i e s . The Bank was founded, a l o n g w i t h t h e I n t e r n a t i o n a l Monetary Fund, f o l l o w i n g t h e 1944 i n t e r n a t i o n a l economic conf e r e n c e a t B r e t t o n Woods, New Hampshire. The Bank was i n t e n d e d t o b e a major i n s t r u m e n t f o r promoting i n t e r n a t i o n a l economic c o o p e r a t i o n , long-term b a l a n c e d g r o w t h , and i n t e r n a t i o n a l f i n a n c i a l s t a b i l i t y . Over t h e y e a r s , i t h a s made v a r i o u s c h a n g e s i n i t s o p e r a t i o n s and proc e d u r e s a s i t h a s s o u g h t t o p u r s u e t h e s e g o a l s i n a c h a n g i n g economic environment. The World Bank h a s grown s u b s t a n t i a l l y s i n c e i t began l o a n o p e r a t i o n s i n 1947. From 44 member c o u n t r i e s a t t h e t i m e -- most i n Western Europe and t h e Americas t h e B a n k ' s membership h a s grown t o 149 countries. I n 1985, t h e Bank a p p r o v e d 236 l o a n s t o t a l l i n g $14.4 b i l l i o n t o 8 3 c o u n t r i e s . F i g u r e l shows t h e g r o w t h o f World Bank l e n d i n g s i n c e 1947. -- The World Bank o p e r a t e s t h r o u g h t h r e e a f f i l i a t e s ( o r , a s some would s a y , t h r e e l o a n windows). The I n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n and Development (IBRD), t h e o r i g i n a l World Bank, l o a n s money F i g u r e 1. Annual IBRO and IDA Lending, 1947-1985 ( m i 11ions o f US d o l l a r e q u i v a l e n t ) (Source: World Bank) a t near-commercial i n t e r e s t r a t e s m a i n l y t o middle-income n a t i o n s . The second a f f i l i a t e , t h e I n t e r n a t i o n a l F i n a n c e C o r p o r a t i o n ( I F C ) , which was founded i n 1956, makes l o a n s and e q u i t y i n v e s t m e n t s t o l o c a l p r i v a t e l y owned f i r m s i n d e v e l o p i n g c o u n t r i e s , i n o r d e r t o h e l p s t r e n g t h e n p r i v a t e s e c t o r g r o w t h . I t i s run a s a semi-autonomous body, w i t h i t s own managing v i c e p r e s i d e n t and a s e p a r a t e s t a f f . The t h i r d a f f i l i a t e , t h e I n t e r n a t i o n a l Development Associat i o n (IDA), which was founded i n 1960, makes c o n c e s s i o n a l (noi n t e r e s t ) l o a n s t o t h e w o r l d ' s p o o r e s t c o u n t r i e s . The IBRD and I D A a r e t h e p r i n c i p a l c h a n n e l f o r World Bank a s s i s t a n c e t o d e v e l o p i n g c o u n t r i e s . A s a p r a c t i c a l m a t t e r , t h e y o p e r a t e a s though t h e y were a s i n g l e agency w i t h two "checkbooks ," two s e p a r a t e l o a n a c c o u n t s . They s h a r e a common management, s t a f f , o p e r a t i n g p o l i c i e s , and f a c i l i t i e s . They a c c o u n t e d f o r 94 p e r c e n t o f t h e World Bank's t o t a l a i d c a n m i t m e n t s i n 1985, w h i l e t h e IFC a c c o u n t e d f o r 6 p e r c e n t o f Bank commitments t h a t y e a r . T h i s p a p e r f o c u s e s , f o r t h e most p a r t , o n i s s u e s which r e l a t e t o t h e I B R D and I D A . In a d d i t i o n t o t h e World Bank, t h e r e a r e m u l t i l a t e r a l d e v e l o p ment banks f o r a l l t h e m a j o r d e v e l o p i n g r e g i o n s of t h e world. These a r e t h e Inter-American Development Bank (IDB) , founded i n 1959, t h e A f r i c a n Developnent Bank (AFDB), founded i n 1964, and t h e Asian Development Bank (ADB), founded i n 1966. Like t h e World Bank, e a c h r e g i o n a l development bank a l s o h a s a n e a r - m a r k e t r a t e window (which l e n d s what t h e banks c a l l " o r d i n a r y c a p i t a l " ) and a c o n c e s s i o n a l - r a t e window f o r a i d t o t h e n e e d i e s t c o u n t r i e s i n t h e i r r e g i o n s . The World Bank i s t h e l a r g e s t and most i n f l u e n t i a l of t h e m u l t i l a t e r a l b a n k s . In 1985, f o r example, t h e I B R D p r o v i d e d 66 p e r c e n t o f t h e near-market r a t e l o a n s and t h e I D A p r o v i d e d o v e r 6 9 p e r c e n t o f t h e c o n c e s s i o n a l l o a n s l e n t by a l l t h e m u l t i l a t e r a l b a n k s . The World Bank and t h e o t h e r m u l t i l a t e r a l a g e n c i e s a r e organi z e d l i k e c o r p o r a t i o n s . Voting power i s e i g h t e d i n p r o p o r t i o n t o each country's contribution ( o r subscription t o c a p i t a l stock.) The World Bank i s headed by a p r e s i d e n t , who manages day-to-day o p e r a t i o n s and s u p e r v i s e s t h e a p p r o x i m a t e l y 6 , 2 0 0 i n t e r n a t i o n a l c i v i l s e r v a n t s who c o m p r i s e t h e Bank s t a f f . The p r e s i d e n t i s e l e c t e d f o r a f i v e - y e a r term by t h e B a n k ' s Board of E x e c u t i v e D i r e c t o r s , a 21 member panel a p p o i n t e d o r e l e c t e d by t h e member c o u n t r i e s . By t r a d i t i o n , t h e United S t a t e s n o m i n a t e s t h e World Bank p r e s i d e n t w h i l e t h e Europeans name t h e head o f t h e L n t e r n a t i o n a l Monetary Fund. The e x e c u t i v e board m e e t s i n c o n t i n u o u s s e s s i o n t o o v e r s e e Bank o p e r a t i o n s and make a l l f i n a l l o a n d e c i s i o n s . The United S t a t e s i s t h e l a r g e s t s i n g l e c o n t r i b u t o r and, t o g e t h e r with t h e 4 o t h e r l a r g e s t stockholders, i t h a s t h e r i g h t t o a p p o i n t i t s own r e p r e s e n t a t i v e on t h e Bank execut i v e b o a r d . The s m a l l e r s t o c k h o l d e r s form g r o u p i n g s t o e l e c t t h e o t h e r 16 e x e c u t i v e d i r e c t o r s , The number o f v o t e s e a c h e x e c u t i v e d i r e c t o r c a s t s will depend on t h e number o f v o t e s p o s s e s s e d by t h e c o u n t r y o r c o u n t r i e s which named him. The Bank's Board of Governors normally meets once a year a t t h e annual meeting, l i k e s t o c k h o l d e r s , t o r e v i e w Bank o p e r a t i o n s , d i s c u s s t h e i n t e r n a t i o n a l s i t u a t i o n , and e l e c t e x e c u t i v e d i r e c t o r s a s t h e i r t e r m s o f o f f i c e e x p i r e . Each usually c o u n t r y h a s o n e r e p r e s e n t a t i v e on t h e Board of Governors -- t h e Finance M i n i s t e r o r Treasury S e c r e t a r y ber of voting shares h i s country possesses. -- who c a s t s whatever num- No s i n g l e c o u n t r y c o n t r o l s t h e World Bank, a l t h o u g h t h e United S t a t e s and t h e o t h e r advanced i n d u s t r i a l c o u n t r i e s a l l h a v e s u b s t a n t i a l i n f l u e n c e w i t h i n i t . D e c i s i o n s on t h e Bank's e x e c u t i v e b o a r d a r e u s u a l l y made o n a c o n s e n s u s b a s i s , f o l l o w i n g a d i s c u s s i o n which a i r s t h e r e l e v a n t v i e w o f t h e d i f f e r e n t c o u n t r i e s . The Board may t a k e a formal v o t e i f no c o n s e n s u s emerges from i t s d e l i b e r a t i o n s . Influence i n those deliberations i s closely linked t o country voting s h a r e s . The t o p f i v e s t o c k h o l d e r s ( U n i t e d S t a t e s , J a p a n , Germany, United Kingdom, and F r a n c e ) h a v e 4 3 . 3 p e r c e n t o f t h e v o t e i n t h e IBRD and 4 4 . 7 p e r c e n t i n t h e IDA. T o g e t h e r w i t h t h e o t h e r members o f t h e O r g a n i z a t i o n f o r Economic C o o p e r a t i o n and Development (OECD) , t h e advanced i n d u s t r i a l c o u n t r i e s h a v e 6 3 . 7 p e r c e n t o f t h e v o t e i n t h e I B R D and 6 3 . 2 p e r c e n t i n t h e I D A . The f u n d i n g a r r a n g e m e n t s f o r t h e I B R D and i t s two a f f i l i a t e s , t h e I n t e r n a t i o n a l Development A s s o c i a t i o n (IDA), and t h e I n t e r n a t i o n a l The IBRD o p e r a t e s m a i n l y u s i n g F i n a n c e C o r p o r a t i o n ( IFC) d i f f e r f u n d s borrowed o n world c a p i t a l m a r k e t s and backed by t h e B a n k ' s g e n e r a l c r e d i t w o r t h i n e s s and by t h e s u b s c r i p t i o n s o f i t s member count r i e s . From t i m e t o t i m e , t h e IBRD's members meet t o d i s c u s s p o s s i b l e i n c r e a s e s i n t h e Bank's c a p i t a l s t o c k . During t h e s e n e g o t i a t i o n s , i n a d d i t i o n t o s e t t l i n g t h e s i z e and t e r n s o f t h e c a p i t a l e x p a n s i o n , t h e member c o u n t r i e s a l s o d i s c u s s c o u n t r y s h a r e s , l o a n and o p e r a t i n g p o l i c i e s , and o t h e r r e l e v a n t i s s u e s . U n t i l r e c e n t l y , c o u n t r i e s subs c r i b e d t o new I B R D c a p i t a l s t o c k b y p a y i n g 1 0 p e r c e n t o f i t s v a l u e i n p a i d - i n c a p i t a l and t h e o t h e r 9 0 p e r c e n t i n c a l l a b l e c a p i t a l . ( I n t h e l a s t c a p i t a l i n c r e a s e , t h e paid-in p o r t i o n f e l l t o 7.5 p e r c e n t . ) P a i d - i n c a p i t a l i s t h e p o r t i o n o f a c o u n t r y ' s s u b s c r i p t i o n which i t r a n i t s t o t h e Bank a t t h e t i m e i t s u b s c r i b e s i t s s h a r e s . C a l l a b l e c a p i t a l i s t h e p o r t i o n which t h e c o u n t r y a g r e e s t o r e m i t i f t h e Bank c a l l s f o r i t s payment. The Bank c a n c a l l on t h i s c a l l a b l e c a p i t a l o n l y i f i t n e e d s t h e f u n d s t o meet i t s o b l i g a t i o n s t o i t s own creditors. . Because t h e IDA i s a c o n c e s s i o n a l l o a n program, i t n e e d s r a t h e r t h a n borrowings d i r e c t c o n t r i b u t i o n s from member c o u n t r i e s on commercial m a r k e t s -- t o fund i t s o p e r a t i o n s . The d o n o r c o u n t r i e s meet e v e r y t h r e e y e a r s t o n e g o t i a t e new r e p l e n i s h m e n t s o f IDA'S f u n d s . The s i z e o f t h e r e p l e n i s h m e n t and t h e s h a r e s f o r e a c h d o n o r a r e m a t t e r s for n e g o t i a t i o n . As a t t h e IBRD t a l k s , c o u n t r i e s o f t e n press f o r the r e s o l u t i o n of operational o r policy i s s u e s during the course of t h e discussions . -- The IFC o p e r a t e s p a r t l y w i t h f u n d s c o n t r i b u t e d d i r e c t l y b y i t s member c o u n t r i e s b u t m a i n l y w i t h f u n d s borrowed from t h e I B R D . ( I n f i s c a l 1986, f o r t h e f i r s t t i m e , i t a l s o borrowed on two o c c a s i o n s d i r e c t l y on p r i v a t e c a p i t a l m a r k e t s . ) The member c o u n t r i e s h a v e m e t t h r e e t i m e s ( 1 9 5 5 , 1 9 7 7 , and 1982) t o n e g o t i a t e e x p a n s i o n s o f IFC c a p i t a l s t o c k . A s w i t h I D A r e p l e n i s h m e n t s , IFC c a p i t a l e x p a n s i o n s i n v o l v e d i r e c t c o n t r i b u t i o n s o f f u n d s p a i d i n from t h e member's treasuries. I. WORLD BANK BORROWING ACTIVITIES / Question 1. Where does the World Bank obtain get the money it lends? The IBRD has three main sources of income which it can use to finance its loans: borrowings, net income, and subscriptions of usable paid-in capital. Historically, usable paid-in subscriptions have accounted for about 5 percent, earnings for about 8 percent, and borrowings for about 8 7 percent of the World Bank's available funds. As of December 31, 1985, borrowings since inception totalled $61.5 billion, reserves (mainly retained earnings) and other accumulated income totalled $5.8 billion, and subscriptions of freely usable paid-in capital totalled $3.6 billion. (Countries pay part of their paid-in subscriptions in foreign exchange and part in their own currencies. For many LDCs, the part subscribed in their own currencies cannot be used for loans to other countries.) In the early years of the IBRD's history, a good portion of its disbursements were financed using paid-in capital. In recent years, however, the Bank has relied on borrowing and income from other sources. Table 1 (next page) shows that IBRD loan disbursements have actually been smaller than new borrowings in all but one of the past five years. Question 2: How much does the World Bank borrow each year? How large is the World Bank's outstanding debt? Borrowings. The World Bank is a major multi-currency borrower in world capital markets. Figure 2 (page 6) shows the amounts the IBRD has borrowed during the last five years. Its borrowings went from $5.7 billion in 1981 to $13.8 billion in 1985, a 142 percent increase. The Bank reports that it plans to borrow around $10.6 billion on a mediumand long-term basis and another $650 million on a shortterm basis in fiscal 1986. The Bank also plans to refinance its $3.45 billion in existing shortterm obligations. The Bank says that, in fiscal 1987, it will borrow about $10 billion more on a short- or long-term basis. The amount the Bank needs to borrow is closely related to the amount i t expects to disburse. In fiscal 1982, the Bank disbursed $6.37 billion, while in fiscal 1985 it disbursed nearly $8.87 billion on its outstanding loan commitments. (It expects to disburse another $9.3 billion in fiscal 1986.) The volume of Bank loan com- U * Unallocated Net IRRD B o r r o v i n g Income f o r Year* f o r Year I BRD New Total Loan Repayments Change i n Net Value o f Currency Usable Paid-in Exchange S u b s c r i p t i o n s Adjustments1 SOURCES OF FUNDS $6.428.8 10,371.6 13.486.5 13,299.8 15,481.7 -- TOTAL FUNDS Total Debt Retireaent -- Total IBRD Loan Disbursements ------ Change i n Value o f IBRD Liquid Asset USES OF FUNDS IBRD Contribution t o IDA Other Debits (rim. )s Includes c e r t a i n c r e d i t s ( r e c e i p t s from s a l e s of l o a n s , non-cash i n c r e a s e s i n v a l u e of IBRD r e s o u r c e s , and i n c r e a s e i n amount payable t o I D A ) l e s s c e r t a i n d e b i t s (termed " o t h e r , n e t " i n IBRD accounts.) R e f l e c t s t h e n e t g a i n o r l o s s i n t h e v a l u e of t h e IBRD's outstanding l o a n s t o developing c o u n t r i e s and i t s own borrowings i n c a p i t a l markets due t o changes i n currency exchange v a l u e s . Loan f i g u r e s d i f f e r here from t h o s e on Figure 2. These d a t a , which a r e t a b l u a t e d by a d i f f e r e n t o f f i c e i n t h e Bank, show t h o s e borrowings f o r which t h e t r a n s a c t i o n s were completed d u r i n g t h e f i s c a l year and amounts r e c e i v a b l e on c u r r e n t c o n t r a c t s . Figure 2 i n c l u d e s t r a n s a c t i o n s which were i n i t i a t e d b e f o r e t h e c l o s e of t h e f i s c a l year but had s e t t l e m e n t d a t e s a few days a f t e r t h e c l o s e of t h e f i s c a l year. YEAR - Table 1. World Bank Sources of Funds and Uses of Funds, 1981-1985 ( m i l l i o n s of d o l l a r e q u i v a l e n t ) F i g u r e 2. Volume and Type o f W o r l d Bank Borrowings, 1981-1985 ( m i l l i o n s o f US d o l l a r e q u i v a l e n t ) 14000 Ref i n a n c i n g (Official and P r i v a t e ) I I , Offi c i a (New) 12000 ioooo Private S e c t o r (New) 7 Official (fixed rate) I BOO0 I woo Private Sector (variable) 4000 I I I ," IS I, Private 1 E3 Secto r 16 (fixed rate) I g 2000 I 0 MEDIUMAND LONG-TERM private Sector Official (fixed rate)(variable) (fixed) Total SHORT-TEW IPrivate O f f i c i a l Total ISector I- I (Source: PI PROGRAM FOR NEW BORROWINGS ' RFFINANCING OF SHORTTEW BORROWINGS O f f i c i a l Total 1 T o t a l Of which 1 P r i v a t e 1 Cur Swaps 1 S e c t o r I I - World Bank F i n a n c i a l O p e r a t i o n s D e p a r t m e n t ) m i t m e n t s i n c r e a s e d , m e a n w h i l e , from $ 1 0 . 3 3 b i l l i o n i n 1982 t o a b o u t $11.36 b i l l i o n i n 1985. The Bank h a s r e c e n t l y u n v e i l e d a p l a n t o a l m o s t d o u b l e i t s a n n u a l volume o f l o a n c m i t m e n t s b y 1990. An i n c r e a s e i n l o a n commitments d o e s n o t mean t h e l e v e l o f d i s b u r s e m e n t s will i n c r e a s e r i g h t away, a s t h e Bank o n l y d i s b u r s e s f u n d s a s t h e m r k on i t s p r o j e c t s p r o g r e s s e s and t h e b i l l s from t h e c o n t r a c t o r s c a n e d u e . N e v e r t h e l e s s , m o r e comm i t m e n t s mean more d i s b u r e m e n t s a t some f u t u r e d a t e . If t h i s pattern o f g r o w i n g commitment and d i s b u r s e m e n t l e v e l s c o n t i n u e s , t h e Bank w i l l need t o b o r r o w l a r g e r sums i n f u t u r e y e a r s . Many a n a l y s t s c o n t e n d t h a t a m a j o r i n c r e a s e i n t h e volume o f World Bank l e n d i n g i s n e c e s s a r y , g i v e n t h e s t a t e o f t h e world f i n a n c i a l s y s t e m . Some c r i t i c s m a i n t a i n , t h o u g h , t h a t t h e World Bank i s a l r e a d y t o o l a r g e and t h i s i n c r e a s e i n I f t h e volume o f Bank d i s b u r s e m e n t s l e n d i n g should not take p l a c e . r e m a i n s t h e same o r i f i t d e c l i n e s i n t h e f u t u r e ( a l e s s l i k e l y e v e n t u a l i t y , ) t h e amount o f World Bank b o r r o w i n g would a l s o d e c l i n e . O u t s t a n d i n g d e b t . Table 2 shows t h e World Bank's t o t a l o u t s t a n d ing d e b t and annual i n t e r e s t payments f o r each year from 1981 t o 1985. Bank's t o t a l d e b t i n c r e a s e d - d u r i n g t h i s p e r i o d from $27.8 b i l l i o n t o $50.2 b i l l i o n , a n 80 p e r c e n t r i s e . T a b l e 2. World Bank Outstanding Debt, 1981-5 ( m i l l i o n s o f U.S. d o l l a r s e q u i v a l e n t ) s h o r t term borrowings medium & long-term borrowings t o t a l outstanding annual i n t e r e s t c o s t of t h i s debt 1981 ---- ---- 27,757 27,757 2,104 1982 1983 1,488 1984 2,721 1985 3,450 31,761 31,761 38,065 39,553 42,294 45,015 46,791 50,241 2,423 3,085 3,638 3,933 (Source: World Bank annual r e p o r t s , r e l e v a n t y e a r s ) I I I I Question 3: How much d o e s t h e World Bank borrow from governments ( i n c l u d i n g c e n t r a l banks) compared t o p r i v a t e c a p i t a l m a r k e t s ? I I I 1 I n r e c e n t y e a r s , t h e World Bank h a s expanded i t s borrowing f r a n b o t h o f f i c i a l (government) and p r i v a t e c a p i t a l s o u r c e s . F i g u r e 3 shows t h a t t h e p r i v a t e s e c t o r h a s been t h e l a r g e s t s o u r c e o f money f i n a n c i n g IBRD o p e r a t i o n s . As F i g u r e 2 (page 6) i n d i c a t e s , t h e b u l k of t h i s p r i v a t e money h a s been borrowed a t medium- and long-term f i x e d r a t e s , a l t h o u g h t h e amount borrowed on a short-term b a s i s o r a t v a r i a b l e r a t e s has increased s i g n i f i c a n t l y of l a t e . 14000 T F i g u r e 3. World Bank B o r r o w i n g from O f f i c i a l and P r i v a t e Sources, 1981-1985 ( m i l l i o n s o f US d o l l a r e q u i v a l e n t ) Official Sources @ Private Sect o r Sources 1961 1902 1983 1984 1985 (Source : r e c a l c u l a t e d f r a n d a t a a s s o c i a t e d with F i g u r e 2 ) F i g u r e 4 shows t h e l e v e l and " n a t i o n a l i t y " o f World Bank borrowi n g from o f f i c i a l s o u r c e s . 'Ihe World Bank o n c e d e r i v e d a s u b s t a n t i a l p o r t i o n o f i t s b o r r o w i n g s from c e n t r a l banks i n many c o u n t r i e s . Now, however, w h i l e c e n t r a l banks a r e s t i l l an i m p o r t a n t s o u r c e o f f u n d s , o t h e r s o u r c e s h a v e become i n c r e a s i n g l y s i g n i f i c a n t . The Bank of J a p a n and t h e Bundesbank ( t h e West German c e n t r a l bank) -- m a j o r s o u r c e s i n p r e v i o u s y e a r s -- h a v e become l e s s s u b s t a n t i a l l e n d e r s i n r e c e n t y e a r s . a World Bank By c o n t r a s t , t h e World Bank's new C e n t r a l Bank F a c i l i t y h a s become a major s o u r c e of f u n d s . b o r r o w i n g program c r e a t e d i n 1984 U n l i k e t h e Bank's o t h e r b o r r o w i n g s from c e n t r a l banks, which i n v o l v e d f i x e d amounts l e n t o v e r s e t p e r i o d s o f t i m e , t h e C e n t r a l Bank F a c i l i t y p e r m i t s c o u n t r i e s t o l e n d U.S. d o l l a r s from t h e i r f o r e i g n exchange r e s e r v e s t o t h e Bank w h i l e s t i l l h a v i n g l i q u i d a c c e s s ( t h e i r f u n d s a r e d e p o s i t e d f o r a y e a r b u t may b e withdrawn t o meet b a l a n c e o f payments e m e r g e n c i e s ) t o t h e i r f u n d s . R i v a t e p l a c e m e n t s -- s e c u r i t y i s s u e s n e g o t i a t e d d i r e c t l y r a t h e r than through public o f f e r i n g s i n c a p i t a l -- -- F i g u r e 4 . World Bank B o r r o w i n g f r o m O f f i c i a l Sources, 1981-1985 ( m i l l i o n s o f US d o l l a r e q u i v a l e n t ) Central Bank Facility Bank o f Japan Bundesbank Private Placements (non-OPEC) Private Placements (OPEC) General Central Bank I s s u e s General Central Bank I s s u e s Private Placements OPEC non-OPEC Bundesbank Bank of Japan Central Bank Facility (Source: World Bank F i n a n c i a l O p e r a t i o n s Department) m a r k e t s -- and d i r e c t l o a n s r e m a i n o t h e r major s o u r c e s f o r World Bank o f f i c i a l borrowings. Most have been a r r a n g e d ~it h OPEC g o v e r n m e n t s i n r e c e n t y e a r s , t h o u g h t h i s may change i f t h e p r i c e o f o i l s t a y s low. I I Question 4 : I I 1 How much h a s t h e Bank borrowed i n t h e United S t a t e s i n recent years? I 1 I I I A s F i g u r e 5 ( n e x t page) shows, t h e World Bank d i d n o t b o r r o w i n t h e U.S. c a p i t a l m a r k e t a t a l l between 1979 and 1 9 8 1 , and i t s U.S. b o r r o w i n g s i n 1984 and 1985 were p r o p o r t i o n a l l y much l e s s t h a n a d e c a d e e a r l i e r . The Bank h a s borrowed i n c r e a s i n g amounts o f d o l l a r s i n o v e r s e a s ( E u r o d o l l a r ) c a p i t a l m a r k e t s d u r i n g t h e p a s t d e c a d e . Even s o , t h e s h a r e o f i t s b o r r o w i n g which was denominated i n d o l l a r s h a s sometimes b e e n lower t h a n u s u a l i n t h e p a s t d e c a d e . The Bank h a s a l s o used swaps t o f u r t h e r r e d u c e i t s d o l l a r b o r r o w i n g s . In 1 9 8 5 , f o r e x a m p l e , t h e Bank swapped $1,058 m i l l i o n i n d o l l a r s f o r o t h e r c u r r e n c i e s , m a i n l y Swiss f r a n c s , d e u t s c h m a r k s , Dutch g u i l d e r s , and J a p a n e s e yen. T h i s r e d u c e d t h e n e t e f f e c t i v e s h a r e o f i t s b o r r o w i n g s i n d o l l a r s f o r t h e y e a r from a b o u t 31 t o 2 3 p e r c e n t . -- often a In a swap, t h e Bank c o n t r a c t s w i t h a n o t h e r p a r t y t o t r a d e o b l i g a t i o n s t o make a s e r i e s o f paym u l t i n a t i o n a l firm a t today's prices ments i n one c u r r e n c y f o r a s i m i l a r o b l i g a t i o n i n a n o t h e r c u r r e n c y . Both p a r t i e s b e n e f i t from t h e swap, f o r t h e y c a n each t a k e advantage of t h e o t h e r ' s e s t a b l i s h e d p o s i t i o n i n i t s c a p i t a l market t o g e t a b e t t e r i n t e r e s t r a t e on t h e loan i n t h e c u r r e n c y t h e y r e a l l y want t h a n t h e y c o u l d g e t i f t h e y borrowed t h e f u n d s d i r e c t l y . The World Bank c a n b o r r o w d o l l a r s i n t h e E u r o d o l l a r o r U.S. m a r k e t a t a good r a t e , f o r example, and c a n t h e n swap t h o s e d o l l a r s f o r Swiss f r a n c s t h a t t h e swap p a r t n e r borrowed i n S w i t z e r l a n d a t a v e r y good r a t e . The Bank c a n t h u s s w i t c h a l a r g e r s h a r e o f b o r r o w i n g s i n t o l o w i n t e r e s t r a t e c u r r e n c i e s and t h e r e b y r e d u c e t h e a v e r a g e c o s t o f a n n u a l b o r r o w i n g s .) -- -- -- Of i t s $ 4 1 . 4 b i l l i o n i n o u t s t a n d i n g l o a n s a s o f J u n e 3 0 , 1 9 8 5 , t h e Bank r e p o r t s t h a t o n l y $6.7 b i l l i o n had b e e n d i s b u r s e d i n U.S. d o l l a r s ( l e s s t h a n t h e n e t amount borrowed i n d o l l a r s i n o v e r s e a s capi t a l m a r k e t s o r from f o r e i g n g o v e r n m e n t s . ) The Bank s a y s t h e r e s t o f i t s d o l l a r borrowings w r e held i n i t s l i q u i d a s s e t s over $12 b i l l i o n of which were i n v e s t e d ( i n d o l l a r s ) m a i n l y i n government s e c u r i t i e s , w i t h a l e s s e r p r o p o r t i o n i n v e s t e d i n o b l i g a t i o n s o f commercial b a n k s i n t h e United S t a t e s . On a n e t b a s i s , i t a p p e a r s t h a t t h e B a n k ' s b o r r o w i n g program h a s b r o u g h t more money i n t o t h e U. S. d o m e s t i c c a p i t a l market t h a n i t h a s t a k e n o u t . -- Figure 5. World Bank New Borrowings i n the United States and Other Capital Markets, as a Share o f All New Borrowing for the Year# (millions of US dollar equivalent) Dollar Borrowings i n U.S. Capital Markets Oollar Borrowings i n Other Capital Markets Non-Dollar Borrowings Borrowinps in U.S. Capital Market amount share I 1.275.0 34.63% 1;350.0 28.83% 750.0 20.73% none none none none none none 1,550.0 18.23% 3.450.0 33.58% 1,399.0 13.22% 1,118.5 10.09% 1 I 1 Dollar Borrowings Other Markets1 amount share 750.0 20.37% - - Total WB Dollar Borrowings mount share I 2,025.0 55.00% I Total M Borrowings amount 6hare 3,h81.8 100.0% I I I I 1 1 1 Excludes currency swaps (which may have the net effect of chanping the share of the Bank's borrowings in particular currencies) as well as refinanced short-term debt (for 1984 and 1985) and a minor borrowing (Interest Subsidy Fund) where the capital market is not identified. 1 Includes public o f f e r i n g s on the Eurobond and Asian bond markets as well as dollardenominated placements with central banks, governments and international organization6 ( S o u r c e : World Bank annual reports, r e l e v a n t y e a r s ) 1 I I I 1 Q u e s t i o n 5: Why d o e s t h e World Bank, o f t e n f o r prolonged p e r i o d s , s t a y outofcertaincapitalmarkets? I 1 I I Between 1981 and 1985, t h e World Bank s o l d s e c u r i t i e s t o nong o v e r n m e n t a l p u r c h a s e r s i n 2 3 c o u n t r i e s and borrowed from o f f i c i a l s o u r c e s i n 96 c o u n t r i e s . The Bank borrows r e g u l a r l y i n most o f t h e major c a p i t a l m a r k e t s , b u t i t does n o t n e c e s s a r i l y borrow i n e v e r y m a r k e t e v e r y y e a r . The World Bank's A r t i c l e s o f Agreement s p e c i f y t h a t i t may b o r r o w o n l y w i t h t h e p e r m i s s i o n o f t h e government i n whose m a r k e t t h e f u n d s a r e b e i n g borrowed. Thus, t h e Bank may have t o l i m i t i t s b o r r o w i n g i f a g o v e r w e n t c l o s e s o r r e s t r i c t s a c c e s s t o i t s count r y ' s c a p i t a l m a r k e t s f o r p o l i c y r e a s o n s o r b e c a u s e o f b a l a n c e of paym e n t s o r o t h e r f i n a n c i a l c o n s t r a i n t s . As a p r a c t i c a l m a t t e r , t h e Bank may a l s o l i m i t i t s b o r r o w i n g s i n a c o u n t r y f o r economic r e a s o n s i f i t f i n d s t h a t i t c a n b o r r o w money e l s e w h e r e a t b e t t e r r a t e s . I n j u d g i n g t h e c o s t o f i t s b o r r o w i n g s , t h e Bank l o o k s n o t o n l y a t t h e c u r r e n t i n t e r e s t r a t e s f o r l o a n s i n d i f f e r e n t c u r r e n c i e s , b u t a l s o a t whether t h e s a v i n g s on i n t e r e s t c o s t s w i l l b e n e g a t e d by f u t u r e c h a n g e s i n currency values. I I 1 1 Question 6: Are t h e f u n d s t h e Bank borrows earmarked f o r any p a r t i c u l a r loan, p r o j e c t , o r developing country? I I I 1 I I No. The World Bank b o r r o w s i n o r d e r t o s u p p o r t t h e r e q u i r e m e n t s o f i t s o v e r a l l l e n d i n g program. The Bank d o e s n o t s e g r e g a t e i t s f u n d s a c c o r d i n g t o t h e p r o j e c t s o r c o u n t r i e s f o r which t h e y w i l l b e u s e d . I 1 1 How d o e s t h e Bank d e c i d e which c u r r e n c i e s t o borrow? What c o n s i d e r a t i o n i s g i v e n t o p o t e n t i a l l o s s e s from exchange r a t e f l u c t u a t i o n s ? The World Bank i n t e r p r e t s i t s A r t i c l e s of Agreement a s p r o h i b i t i n g i t from assuming any e x c h a n g e r a t e r i s k s w i t h borrowed o r subs c r i b e d c a p i t a l . Consequently, f o r e v e r y L i a b i l i t y i n a c u r r e n c y , t h e Bank h a s a c o m p a r a b l e a s s e t i n t h e same c u r r e n c y . The c o u n t r i e s b o r rowing from t h e World Bank assume t h e f o r e i g n exchange r i s k s on t h e i r l o a n s . For a c c o u n t i n g p u r p o s e s , Bank l o a n commitments a r e denominated i n d o l l a r s , although t h e loans a r e a c t u a l l y disbursed i n a v a r i e t y o f c u r r e n c i e s . The b o r r o w e r s must r e p a y t h e same amount i n e a c h c u r r e n c y t h a t t h e y r e c e i v e d when t h e l o a n was d i s b u r s e d -- w i t h o u t r e g a r d f o r whether t h o s e c u r r e n c i e s may h a v e gone up o r down i n v a l u e r e l a t i v e and t h e Bank u s e s t o t h e d o l l a r o r some o t h e r benchmark c u r r e n c y t h e repayments t o s a t i s f y i t s c o r r e s p o n d i n g o b l i g a t i o n s i n t h e s e same c u r r e n c i e s . The d o l l a r v a l u e o f Bank l o a n s may change when t h e r e a r e s h i f t s i n the r e l a t i v e value o f the disbursed currencies, but the v a l u e of t h e Bank's o u t s t a n d i n g o b l i g a t i o n s ( i t s borrowings) w i l l s h i f t i n a compensating manner. -- The Bank g e n e r a l l y o p e r a t e s , however, a s i f i t were t a k i n g currency r i s k s in i t s loan operations. Thus, i t s e e k s t o b o r r o w and d i s b u r s e i n c u r r e n c i e s where t h e c h a n c e s o f a n upward r e v a l u a t i o n a r e l i m i t e d . ( I n o t h e r words, i t t r i e s t o avoid s i t u a t i o n s where c u r r e n c y v a l u e s will g o up and t h e l o a n repayments will be worth more t h a n t h e v a l u e o f t h e money l e n t . ) It t r i e s t o e s t i m a t e whether t h e s a v i n g from borrowing c u r r e n c y w i t h a low nominal i n t e r e s t r a t e m i g h t b e o f f s e t by a r e v a l u a t i o n o f t h a t c u r r e n c y a t some p o i n t i n t h e f u t u r e . In many c a s e s , t h e Bank's b o r r o w e r s have b e n e f i t e d from t h i s proc e d u r e . Because t h e U. S. d o l l a r i n c r e a s e d i n v a l u e i n r e c e n t y e a r s , t h e d e v e l o p i n g c o u n t r i e s h a v e been a b l e t o use t h e i r d o l l a r h o l d i n g s i f t h e y wished t o buy c h e a p l y t h e c u r r e n c i e s t h e y needed t o pay t h e i r n o n - d o l l a r d e b t s . The r e a l c o s t o f r e p a y i n g t h e i r d o l l a r - d e n o m i n a t e d l o a n s i n c r e a s e d , of c o u r s e , but t h e l a r g e s t p o r t i o n of t h e i r d e b t s t o t h e Bank h a v e been denominated i n o t h e r c u r r e n c i e s . The World Bank e s t i m a t e s t h a t t h e d e v e l o p i n g c o u n t r i e s c o u l d h a v e made a p r o f i t o f $ 5 b i l l i o n , a s o f December 3 1 , 1985, i f t h e y had locked i n t h e thenc u r r e n t exchange r a t e s t h r o u g h forward exchange m a r k e t s ( t h a t i s , t h r o u g h c o n t r a c t s t o s e l l t h a t amount o f d o l l a r s i n t h e i r own f o r e i g n exchange r e s e r v e s a t a f u t u r e t i m e a t t h e exchange r a t e p r e v a i l i n g a t t h e end of 1 9 8 5 . ) I n a d d i t i o n t o i t s d e s i r e t o avoid d i s b u r s i n g c u r r e n c i e s which a r e l i k e l y t o go up i n v a l u e , t h e World Bank h a s o t h e r r e a s o n s f o r u s i n g s e v e r a l m a j o r c u r r e n c i e s . F i r s t , t h e Bank s e e k s t o d i v e r s i f y t h e number o f c a p i t a l m a r k e t s from which i t draws i t s f u n d s i n o r d e r t o avoid undue dependence on any p a r t i c u l a r m a r k e t . (By k e e p i n g i t s name known i n v a r i o u s m a r k e t s even when i t h a s no p r e s s i n g need f o r m a j o r b o r r o w i n g s i n t h o s e m a r k e t s -- t h e Bank p r o t e c t s i t s f u t u r e a c c e s s t o c a p i t a l . C o u n t r i e s sometimes l i m i t o r c l o s e t h e i r m a r k e t s t o f o r e i g n b o r r o w e r s , and t h e Bank wants c o n t i n u i n g a c c e s s t o a l t e r n a t i v e s o u r c e s i n o t h e r m a r k e t s .) Second, t h e Bank wants t o expand t h e number o f l e n d i n g i n s t i t u t i o n s w i t h which i t d e a l s . T h i r d , t h e Bank may want t o borrow a s p e c i f i c mix o f c u r r e n c i e s b e c a u s e i t i s planni n g t o d i s b u r s e i t s l o a n s i n t h o s e c u r r e n c i e s o r b e c a u s e i t i s planni n g t o "swap" one c u r r e n c y f o r a n o t h e r . -- I I I How s e c u r e a r e l o a n s made t o t h e World Bank? What p r o t e c t i o n s a r e o f f e r e d t o a World Bank b o n d h o l d e r ? How l i k e l y i s i t t h a t c a l l a b l e c a p i t a l will b e c a l l e d ? I 1 I I I There a r e s e v e r a l k i n d s o f a s s u r a n c e s f o r t h e World Bank bondholder. Some p r o v i d e d i r e c t p r o t e c t i o n f o r t h e b o n d h o l d e r ' s i n v e s t ment w h i l e o t h e r s p r o v i d e a s s u r a n c e s r e g a r d i n g i t s g e n e r a l s e c u r i t y . C a l l a b l e c a p i t a l w i l l be c a l l e d o n l y i f t h e Bank h a s e x h a u s t e d i t s e x i s t i n g r e s o u r c e s and i t s t i l l n e e d s a d d i t i o n a l f u n d s t o c o v e r i t s r e m a i n i n g l i a b i l i t i e s t o t h o s e who l e n t i t money. 1. D i r e c t P r o t e c t i o n s f o r Bondholders A. I n f o r m a t i o n . Though t h e World Bank i s exempt from most o f t h e r e q u i r e m e n t s of U.S. s e c u r i t i e s l e g i s l a t i o n , s e c t i o n 15 o f t h e B r e t t o n Woods Agreements Act ( t h e b a s i c law g o v e r n i n g U.S. p a r t i c i p a t i o n i n t h e Bank) r e q u i r e s t h e Bank t o f i l e s u c h r e p o r t s a s t h e S e c u r i t y and Exchange Commission b e l i e v e s n e c e s s a r y '' f o r t h e p r o t e c t i o n o f i n v e s t o r s . " The Bank f i l e s q u a r t e r l y and a n n u a l f i n a n c i a l s t a t e m e n t s and r e g u l a r i n f o r m a t i o n s t a t e m e n t s t h a t p r o v i d e i n f o r m a t i o n which c a n b e v e r y u s e f u l t o i n v e s t o r s who a r e a s s e s s i n g t h e r i s k o f a p o s s i b l e i n v e s t m e n t i n World Bank s e c u r i t i e s . By a c c o r d i n g World Bank b o n d s bond r a t i n g companies have shown a f a v o r a b l e a s s e s s a AAA r a t i n g , t ment o f Bank a s t s , i t s p o r t f o l i o , and i t s b a s i c f i n a n c i a l s i t u a t i o n . B. Legal p r o t e c t i o n . The b o n d h o l d e r h a s s e v e r a l l e g a l p r o t e c t i o n s . 'Ihe Ba s accorded i t s bondholders t h e r i g h t , i f i t should m i s s any payme f p r i n c i p a l o r i n t e r e s t , t o demand repayment o f e them. The A r t i c l e s o f Agreement and t h e B r e t t o n t h e t o t a l amou Woods Agreements Act p r o v i d e t h a t t h e World Bank c a n b e s u e d , i n t h e F e d e r a l c o u r t s o f t h e D i s t r i c t o f Columbia, f o r e n f o r c e m e n t o f i t s obligations . The A r t i c l e s o f Agreement s p e c i f y t h a t t h e Bank's a s s e t s s h a l l be immune from a l l forms o f s e i z u r e , a t t a c h m e n t , o r e x e c u t i o n b e f o r e t h e d e l i v e r y o f f i n a l judgment a g a i n s t t h e Bank. By i m p l i c a t i o n , t h e n , t h e r i g h t s o f t h e b o n d h o l d e r may b e u p h e l d , and a s s e t s c o l l e c t e d , It a p p e a r s , h o w e v e r , t h r o u g h j u d i c i a l a c t i o n and due p r o c e s s o f l a w . t h a t b o n d h o l d e r s c a n n o t s u e t h e Bank's member c o u n t r i e s i n o r d e r t o s e c u r e repayment o n t h e d e b t s . The A r t i c l e s o f Agreement s p e c i f y t h a t a warning must be p l a c e d on a l l World Bank s e c u r i t i e s i n d i c a t i n g t h a t t h e y a r e n o t a n o b l i g a t i o n o f a n y g o v e r n m e n t . As n o t e d b e f o r e , t h e A r t i c l e s l i m i t t h e l i a b i l i t y o f member c o u n t r i e s t o t h e t o t a l v a l u e o f t h e i r subscribed c a p i t a l . 2. P r o t e c t i o n s Against Insolvency The World Bank r e l i e s o n i t s income, a s s e t s , and c a l l a b l e c a p i t a l t o a s s u r e i t s b o n d h o l d e r s t h a t i t w i l l have t h e f u n d s t o r e p a y them In e f f e c t , t h e s e a r e t h e B a n k ' s t h r e e when i t s b o r r o w i n g s come d u e . l i n e s o f d e f e n s e a g a i n s t i n s o l v e n c y . F i g u r e 6 ( n e x t page) i l l u s t r a t e s O' F i g u r e 6 . Amounts Owed by t h e World Bank as o f Dec. 31, 1985, and t h e B a n k ' s Three L i n e s o f Defense A g a i n s t I n s o l v e n c y and D e f a u l t on i t s Own Debt ( b i l l i o n s o f US d o l l a r e q u i v a l e n t ) T 1 short-term ~ e b t s Medium- and Long-term Debts 1-1 WB Debt m e in 1986 -1 m m ' s RefinBocrams ancing IkI in ~ i r s Lt i n e ---> o f Defense -.---- WB Net U WB Paid-in BorrrmdPorriblr Annual 9 e c i a l Gsneral C q ~ i t a l Portion Valw of Incom Reserve Reserve SubaCrip. of N N bttions L l w i d 8 t H l r r ) LIIII) , unts >I Second L i n e o f Defense Callable CIOital Subscr ip. t lonu 1 / I-, Third Line o f Defense t h e s i t u a t i o n . A t t h e f a r l e f t i s shown t h e f u l l $ 6 1 . 1 b i l l i o n which t h e World Bank owed a s of December 31, 1985. The f u l l d e b t d o e s n o t c a n e due a l l a t o n c e , however. 'Ihe World Bank i s s c h e d u l e d t o r e p a y l e n d e r s $7.6 b i l l i o n ( i n s h o r t - t e r m and medium- o r long-term d e b t ) i n f i s c a l 1986. S i m i l a r amounts come due i n s u c c e e d i n g y e a r s . The q u e s t i o n i s whether t h e Bank's f i n a n c i a l r e s o u r c e s a r e s u f f i c e n t t o c o p e w i t h t h i s s e r i e s o f a n n u a l repayment r e q u e s t s from b o n d h o l d e r s . A. The F i r s t L i n e o f Defense. The Bank's f i r s t l i n e o f d e f e n s e i s t h e s t r e a m of l o a n repayments i t a n t i c i p a t e s r e c e i v i n g from i t s borrower c o u n t r i e s . In f i s c a l 1986, t h e Bank i s scheduled t o r e p a y $7.644 b i l l i o n t o r e t i r e o u t s t a n d i n g d e b t a s i t c a n e s d u e . It a l s o e x p e c t s t o r e c e i v e $3.977 b i l l i o n from i t s b o r r o w e r s i n f i s c a l 1986 i n p r i n c i p a l repayments o n t h e i r l o a n s . The r e f l o w o f l o a n r e p a y m e n t s w i l l e n a b l e t h e Bank t o r e p a y a s u b s t a n t i a l p a r t o f i t s own d e b t a s t h e o b l i g a t i o n s comes d u e . The Bank w i l l r e f i n a n c e t h e r e m a i n i n g $3.667 b i l l i o n o f t h a t d e b t . Most o f t h i s ($3.45 b i l l i o n ) i s s h o r t term d e b t , which i s n o r m a l l y r o l l e d o v e r . Only a b o u t $217 m i l l i o n o f i t w i l l b e medium- and long-term d e b t due i n f i s c a l 1986. As a m a t t e r o f p o l i c y , t h e World Bank d o e s n o t p a r t i c i p a t e i n I t e x p e c t s b o r r o w e r s t o r e p a y on s c h e d u l e . The debt reschedulings. Bank r e q u i r e s t h a t governments g u a r a n t e e t h e repayment o f a l l l o a n s t h e Bank makes t o e n t i t i e s i n t h e i r c o u n t r i e s . Hence, a n y f a i l u r e t o pay would b e o n t h e p a r t o f t h e g o v e r n n e n t , n o t a p r i v a t e e n t i t y i n t h e f o r e i g n c o u n t r y . The Bank h a s a p o l i c y o f t e r m i n a t i n g a l l d i s bursements on i t s o u t s t a n d i n g l o a n s t o a c o u n t r y i f a borrower t h e r e f a l l s more t h a n 75 d a y s b e h i n d i n i t s d e b t r e p a y m e n t s t o t h e Bank. So l o n g a s t h e Bank's d e b t repayment p i c t u r e i s sound and i t s b o r r o w e r s a r e r e p a y i n g t h e i r l o a n s on t i m e , t h e Bank s h o u l d have l i t t l e d i f f i c u l t y b o r r o w i n g t h e n e c e s s a r y money t o c o v e r modest s h o r t In an e x t r e m e -- i f p e r h a p s f a l l s by r e f i n a n c i n g i t s remaining d e b t s . improbable s i t u a t i o n , such a s a c o l l a p s e o f t h e i n t e r n a t i o n a l fina n c i a l s y s t e m , t h e r e f i n a n c i n g o p t i o n may n o t b e a v a i l a b l e . The b o r rowing a l t e r n a t i v e i s t h u s shown i n F i g u r e 6 w i t h d o t t e d l i n e s . -- B . The Second L i n e o f D e f e n s e . The Bank1 s a s s e t s a r e t h e second l i n e o f d e f e n s e a s s u r i n g repayment o f i t s o u t s t a n d i n g o b l i g a t i o n s . T h i s p r o c e d u r e comes i n t o e f f e c t o n l y i f t h e Bank e x p e r i e n c e s a s u b s t a n t i a l d r o p i n r e p a y m e n t s from i t s b o r r o w e r s . Bank spokesmen s a y t h a t t h e c o s t o f a n y d e f a u l t s would b e f i r s t c h a r g e d a g a i n s t t h e B a n k ' s n e t income f o r t h e y e a r . 'Ihe B a n k ' s n e t income i s t h e sun o f i t s income from i n v e s t m e n t e a r n i n g s and l o a n c h a r g e s , l e s s i t s o u t l a y s f o r i n t e r e s t , b o r r o w i n g c o s t s , and administ r a t i v e expenses. Defaults a r e o p e r a t i n g l o s s e s , changes i n t h e v a l u e o f a c c o u n t s r e c e i v a b l e , which must b e p a i d f o r o u t o f c u r r e n t income. The a c c o u n t i n g r u l e s s a y t h e y a r e n o t supposed t o b e c o v e r e d t h r o u g h negative adjustments i n the lending i n s t i t u t i o n ' s c a p i t a l accounts. The Bank's n e t income, i n m i l l i o n s o f d o l l a r s , f o r t h e p a s t f i v e y e a r s was a s f o l l o w s : A s o f i t s m i d - p o i n t o n December 3 1 , 1 9 8 5 , t h e B a n k ' s n e t income f o r f i s c a l 1986 was $695 m i l l i o n . These amounts s h o u l d b e s u f f i c i e n t t o cover small l o s s e s . The World Bank h a s n e v e r e x p e r i e n c e d a formal d e f a u l t o n i t s l o a n s . However, i n December 1984, f o r t h e f i r s t t i m e , a b o r r o w e r c o u n t r y ( ~ i c a r a g u a ) f e l l more t h a n s i x months b e h i n d on i t s l o a n paym e n t s . A s a r e s u l t , t h e Bank p u t t h e N i c a r a g u a n l o a n s o n n o n a c c r u a l s t a t u s -- an a c c o u n t i n g s t a t u s which i n d i c a t e s t h a t no income i s b e i n g r e c e i v e d from t h e l o a n . S i n c e t h e n , L i b e r i a a l s o b r i e f l y f e l l more t h a n s i x months b e h i n d , b u t i t s u b s e q u e n t l y c l e a r e d up i t s a r r e a r a g e . N i c a r a g u a ' s $9 m i l l i o n a r r e a r a g e i n p r i n c i p a l i s t h e o n l y c a s e where payments a r e s e r i o u s l y o v e r d u e . The Bank h a s c e a s e d d i s b u r s e m e n t s o n a l l i t s N i c a r a g u a n l o a n s , a s i t s p o l i c i e s r e q u i r e . The Bank s a y s t h a t i t e x p e c t s t o r e c o v e r t h e Eunds e v e n t u a l l y . Should t h e s i t u a t i o n d e t e r i o r a t e f u r t h e r , however, t h e Bank may e v e n t u a l l y h a v e t o d e c l a r e a l o s s o n a l l o r some o f t h e $163 m i l l i o n i n o u t s t a n d i n g N i c a r a g u a n l o a n s . Even s o , i f t h e Bank had t o d e c l a r e i t s e n t i r e N i c a r a g u a n p o r t f o l i o a l o s s and w r i t e o f f t h e whole amount a t o n c e , f o r e x a m p l e , t h e r e s u l t m u l d o n l y b e a modest d r o p i n t h e Bank's t o t a l a n n u a l earnings. I f t h e Bank e x p e r i e n c e d s o many d e f a u l t s t h a t i t s n e t income f o r t h e y e a r was e x h a u s t e d , i t c o u l d d r a w on accumulated r e s e r v e s f o r t h e f u n d s needed t o r e p a y c r e d i t o r s . Bank spokesmen s a y t h e a s s e t s would b e d r a m upon i n t h e f o l l o w i n g o r d e r : F i r s t , a f t e r exhausting annual income, t h e Bank would use t h e r e t a i n e d e a r n i n g s h e l d i n t h e s p e c i a l r e s e r v e ($293 m i l l i o n ) , which i s earmarked a s r e q u i r e d by t h e Artic l e s o f Agreement f o r t h e purpose o f c o v e r i n g d e f i c i e n c i e s o f t h i s s o r t . N e x t , i t would use t h e r e t a i n e d e a r n i n g s h e l d i n t h e g e n e r a l r e s e r v e ( $ 4 . 7 6 9 b i l l i o n a t t h e end of 1 9 8 5 ) , which i s a v a i l a b l e f o r t h i s p u r p o s e b u t n o t l e g a l l y earmarked f o r c o v e r i n g d e f a u l t s . F i n a l l y , a f t e r t h e two p r i o r s o u r c e s o f e q u i t y were used up, t h e Bank would d r a w on t h e paid-in p o r t i o n o f i t s c a p i t a l s t o c k ($5.812 b i l l i o n a s o f December 1 9 8 5 ) t o c o v e r i t s r e m a i n i n g l i a b i l i t i e s . I f t h e Bank n e e d s a d d i t i o n a l f u n d s a f t e r t h i s , i t might use some o f t h e borrowed p o r t i o n o f i t s l i q u i d a s s e t s t o s e t t l e d e b t s . ( S e e t h e answer t o q u e s t i o n 1 0 f o r a d i s c u s s i o n of IBRD l i q u i d a s s e t s . ) It might b e a b l e t o g e n e r a t e more funds by s e l l i n g some o f i t s $52 b i l l i o n p o r t f o l i o o f e x i s t i n g l o a n s . These s a l e s would need t h e c o o p e r a t i o n o f governments and would depend on t h e s t r e n g t h o f t h e world f i n a n c i a l s y s t e m and t h e w i l l i n g n e s s o f p r i v a t e i n v e s t o r s t o p u r c h a s e t h e e x i s t i n g l o a n s . For t h i s r e a s o n , t h e column showing t h e v a l u e o f t h e IBRD l o a n p o r t f o l i o i s shown i n d o t t e d l i n e s i n F i g u r e 6. -- -- Leaving a s i d e t h e p o s s i b i l i t y t h a t t h e Bank might s e l l some o f i t s l o a n s t o g e n e r a t e a d d i t i o n a l f u n d s , i t a p p e a r s t h a t t h e World Bank would p r o b a b l y b e a b l e t o make s c h e d u l e d payments t o b o n d h o l d e r s ( b o t h r e p a y m e n t s a s t h e y come due and i n t e r e s t on t h e o u t s t a n d i n g b a l a n c e ) f o r a t l e a s t two o r t h r e e y e a r s s i m p l y by r e l y i n g on i t s $10.6 b i l l i o n i n r e s e r v e s ( e q u i t y and p a i d - i n c a p i t a l ) and i t s $9.2 b i l l i o n i n b o r rowed l i q u i d a s s e t s . T h i s assumes t h a t t h e Bank r e c e i v e s no l o a n repayments from a n y b o r r o w e r s d u r i n g t h a t p e r i o d . The time p e r i o d would be l o n g e r , o f c o u r s e , i f some b o r r o w e r s k e p t making payments. C . The T h i r d L i n e o f D e f e n s e . The Bank's c a l l a b l e c a p i t a l i s t h e u l t i m a t e t x o t e c t i o n o f f e r e d t o bondholders. I f d e f a u l t s depleted t h e World ~ a n k ' se x i s t i n g a s s e t s , i t would have t o use t h i s t h i i d l i n e o f d e f e n s e t o g e n e r a t e t h e funds t o r e p a y c r e d i t o r s . A s o f Decanber 1985, t h e Bank had c a l l a b l e c a p i t a l s u b s c r i p t i o n s o f $61.1 b i l l i o n . C o i n c i d e n t l y , i t s borrowings t o t a l l e d $61.5 b i l l i o n . The B a n k ' s A r t i c l e s o f Agreement s t a t e t h a t c a l l a b l e c a p i t a l may b e c a l l e d o n l y t o s a t i s f y Bank o b l i g a t i o n s t o i t s c r e d i t o r s . C a l l a b l e c a p i t a l c a n n o t b e c a l l e d m e r e l y t o p r o v i d e t h e Bank w i t h l o a n f u n d s when t h e p r i v a t e c a p i t a l m a r k e t s a r e u n w i l l i n g t o l e n d i t money. The A r t i c l e s o f Agreement a l s o s a y t h e Bank must make c a l l s o n c a l l a b l e c a p i t a l on a p r o - r a t a b a s i s , w i t h e a c h member c o u n t r y p r o v i d i n g a s h a r e o f t h e needed f u n d s c o r r e s p o n d i n g t o i t s s h a r e o f o w n e r s h i p i n t h e Bank. I f some c o u n t r i e s s h o u l d d e f a u l t on t h e i r o b l i g a t i o n s t o honor a World Bank c a p i t a l c a l l , t h e o t h e r s would presumably have t o c o v e r t h e s h o r t f a l l t h r o u g h a n o t h e r p r o p o r t i o n a l c a l l on c a l l a b l e capital. The A r t i c l e s o f Agreement s a y t h a t no c o u n t r y may b e r e q u i r e d t o Thus, s u p p l y more t h a n t h e t o t a l v a l u e o f i t s s u b s c r i b e d c a p i t a l i f t h e Bank u s e s up a l l i t s a s s e t s , i f t h e b o r r o w e r s make no f u r t h e r l o a n r e p a y m e n t s , and i f member c o u n t r i e s f a i l t o honor a l l t h e i r c a l l a b l e c a p i t a l p l e d g e s , t h e Bank t h e n may b e u n a b l e t o r e p a y i t s c r e d i t o r s a s i t s b o r r o w i n g s come d u e . Most a n a l y s t s b e l i e v e t h i s series o f e v e n t u a l i t i e s i s most u n l i k e l y . . I I. FINANCIAL OPERATIONS I I I I Question 9 . I I Where d o e s t h e Bank g e t t h e money i t u s e s t o pay s t a f f and c o v e r o t h e r a d m i n i s t r a t i v e and o p e r a t i n g c o s t s ? I I Both t h e I B R D and t h e I D A pay t h e i r a d m i n i s t r a t i v e e x p e n s e s o u t o f o p e r a t i n g r e v e n u e s ( i n c a n e from i n v e s t m e n t s and i n t e r e s t payments f r w . b o r r o w e r s ) . The I B R D n o r m a l l y r u n s a n e t s u r p l u s a f t e r e x p e n s e s , and u s e s i t s n e t income t o expand r e s e r v e s and t o make an a n n u a l con(The Bank's $2.07 b i l l i o n c u m u l a t i v e c o n t r i b u tribution t o the IDA. t i o n makes i t t h e f i f t h l a r g e s t d o n o r t o IDA. The Bank h a s no v o t e , however, i n I D A d e l i b e r a t i o n s . ) Some c r i t i c s s a y t h e Bank s h o u l d pay d i v i d e n d s t o i t s s t o c k h o l d e r s i n s t e a d o f c o n t r i b u t i n g money t o IDA and expanding I B R D r e s e r v e s . The Reagan A d m i n i s t r a t i o n r e s p o n d e d i n i t s 1982 a s s e s s m e n t o f t h e m u l t i l a t e r a l b a n k s , however, t h a t t h i s would be i n a p p r o p r i a t e , i n l i g h t o f t h e Bank's s p e c i a l r o l e i n t h e world f i n a n c i a l s y s t e m . Because t h e Bank h a s s i g n f i c a n t r e s e r v e s , i n c l u d i n g p a i d - i n c a p i t a l , i t h a s b e e n a b l e t o b o r r o w f u n d s a t a d v a n t a g e o u s r a t e s and p r o v i d e i t s own b o r r o w e r s w i t h development l o a n s a t t h e l o w e s t poss i b l e r a t e s . The Bank i n v e s t s t h e p a i d - i n c a p i t a l , a l o n g w i t h i t s o t h e r r e s e r v e s , and u s e s t h e income from i n v e s t m e n t s t o h e l p f i n a n c e o p e r a t i n g expenses. T h e r e f o r e , p a i d - i n c a p i t a l d o e s have a r o l e i n h e l p i n g s u p p o r t IBRD a d m i n i s t r a t i v e c o s t s . The p r o p o r t i o n o f i n v e s t ment e a r n i n g s d e r i v e d from t h e s e a s s e t s i s r e l a t i v e l y s m a l l , however. The IBRD d o e s n o t d i r e c t l y u s e borrowed f u n d s o r p a i d - i n c a p i t a l t o f i n a n c e o p e r a t i n g e x p e n s e s . The United S t a t e s h a s urged i n p a s t I B R D n e g o t i a t i o n s t h a t t h e r e b e no more p a i d - i n c a p i t a l and t h a t a l l f u t u r e IBRD s u b s c r i p t i o n s s h o u l d i n v o l v e o n l y c a l l a b l e c a p i t a l . The o t h e r m a j o r member c o u n t r i e s h a v e i n s i s t e d , however, t h a t t h e Bank' s f i n a n c i a l r e s o u r c e s s h o u l d b e expanded t h r o u g h some a d d i t i o n a l p a i d - i n c a p i t a l a t t h e time of each c a p i t a l i n c r e a s e . The I D A , by c o n t r a s t , u s u a l l y r u n s a l o s s on i t s c u r r e n t o p e r a t i o n s . The f i g u r e s ( i n m i l l i o n s of d o l l a r s ) f o r t h e l a s t f i v e y e a r s were a s f o l l o w s : One r e a s o n f o r t h i s i s t h e f a c t t h a t I D A l o a n s have a much l o n g e r payb a c k p e r i o d t h a n d o IBRD l o a n s . The IDA must w a i t a much l o n g e r t i m e t o r e c o v e r e x p e n s e s from l o a n r e c e i p t s . Another r e a s o n i s t h e f a c t t h a t IDA'S i n c a n e d o e s n o t grow i n p r o p o r t i o n t o i t s growing e x p e n s e s . IDA'S volume o f l e n d i n g h a s more t h a n doubled i n t h e p a s t d e c a d e and i t s income i s d e r i v e d from payments on i t s e x i s t i n g l o a n s w h i l e i t s c o s t s come £ r a n new l o a n p r e p a r a t i o n s . Consequently, because o f t h i s s h o r t f a l l , some o f t h e money c o n t r i b u t e d by d o n o r s i s used t o s u p p o r t I D A a d m i n i s t r a t i v e c o s t s . The I D A a n t i c i p a t e s however, t h a t i t s h o u l d b e a b l e t o r e p.a y. t h e funds i t i s c u r r e n t l y drawing from c o n t r i b u t e d r e s o u r c e s a s i t s t a r t s g e t t i n g income from new l o a n s . The IDA c h a r g e s no i n t e r e s t o n i t s l o a n s . It d o e s l e v y , t h o u g h , a 314 o f o n e p e r c e n t s e r v i c e c h a r g e ( a " h a n d l i n g charge") on t h e d i s b u r s e d p o r t i o n o f e a c h l o a n and s i n c e J a n u a r y 1982 a 112 o f o n e p e r c e n t commitment c h a r g e y e a r l y on t h e u n d i s b u r s e d b a l a n c e . L i k e t h e I B R D , t h e IDA i n c u r s most o f i t s o p e r a t i n g c o s t s f o r each l o a n p r i o r t o t h e l o a n ' s approval. Considering t h e value of t h e borrowers' f u t u r e s e r v i c e payments ( t h e " h a n d l i n g charge") and commitment f e e , t h e IDA w i l l r e c e i v e more from i t s b o r r o w e r s o v e r t h e c o u r s e o f t h e l o a n t h a n i t s p e n t i n p r e p a r i n g and a d m i n i s t e r i n g i t s l o a n s . ( I n o t h e r words, t h e p r e s e n t v a l u e o f t h e new I D A l o a n s e x c e e d s a d m i n i s t r a t i v e c o s t s .) -- -- The IDA d o e s n o t have a s t a f f o f i t s own. I n s t e a d , t h e IDA p a y s t h e IBRD a management f e e ($273.2 m i l l i o n i n 1985 and $249.23 m i l l i o n i n 1984) which r e p r e s e n t s i t s s h a r e o f t h e a d m i n i s t r a t i v e e x p e n s e s i n c u r r e d by t h e LBRD. I I Q u e s t i o n 10: Why d o e s t h e World Bank keep l a r g e amounts o f money o n hand a s l i q u i d r e s o u r c e s ? Where d o e s i t come from? What c u r r e n c i e s a r e h e l d ? I I I I 1 I The Bank h a s a p o l i c y o f h o l d i n g , a s l i q u i d a s s e t s , a s u n e q u a l t o about 40 t o 4 5 p e r c e n t o f i t s a n t i c i p a t e d n e t cash requirements f o r t h e n e x t t h r e e y e a r s . The Bank o b t a i n s t h e f u n d s t h r o u g h i t s r e g u l a r b o r r o w i n g program. 'Ihe Bank wants l i q u i d i t i e s o f t h i s s o r t s o i t can be s u r e i t h a s t h e f u n d s t o meet a l l d i s b u r s e m e n t and d e b t r e t i r e m e n t o b l i g a t i o n s o v e r a s u s t a i n e d p e r i o d o f t i m e w i t h o u t a n y need f o r new b o r r o w i n g s . T h i s makes t h e Bank r e l a t i v e l y i n d e p e n d e n t o f c u r r e n t c o n d i t i o n s i n t h e c a p i t a l m a r k e t s , f r e e i n g i t from t h e need t o b o r r o w during short-term periods of high i n t e r e s t c o s t s . In t h e p a s t f i v e y e a r s , t h e World Bank's l i q u i d i t y s i t u a t i o n ( t h a t i s , i t s c a s h and l i q u i d i n v e s t m e n t s n e t o f commitments f o r s e t t l e m e n t and c a s h c o l l a t e r a l r e c e i v e d ) h a s been a s f o l l o w s ( i n m i l l i o n s o f dollars) : The Bank's l i q u i d a s s e t s a r e f u l l y i n v e s t e d i n o r d e r t o maximize t h e r e t u r n on i t s i n v e s t m e n t . The Bank i n v e s t s o n l y i n t h e o b l i g a t i o n s o f g o v e r m e n t s ( i n c l u d i n g a g e n c i e s o f t h e U. S. Government) and i n t i m e d e p o s i t s and o t h e r u n c o n d i t i o n a l o b l i g a t i o n s o f b a n k s and f i n a n c i a l i n s t i t u t i o n s . The n e t p r o f i t s o n t h e Bank's i n v e s t m e n t s i n t h e l a s t f i v e y e a r s ( i n m i l l i o n s o f d o l l a r s ) were a s f o l l o w s : The b u l k o f t h e Bank's l i q u i d a s s e t s a r e denominated i n d o l l a r s . On June 3 0 , 1985, s a n e 79 p e r c e n t were i n U.S. d o l l a r s , 9 p e r c e n t i n U.K. pounds, 4 p e r c e n t i n Canadian d o l l a r s , and t h e r e m a i n d e r i n a b o u t 17 other currencies. 111. I I 1 I LENDING OPERATIONS Q u e s t i o n 11: Where d o e s t h e World Bank make inost o f i t s l o a n s and what kinds of a c t i v i t i e s does i t finance? I I 1 I 1 . The B a n k ' s Channine Loan P r i o r i t i e s The g r o w t h i n t h e Bank's membership and o p e r a t i o n s h a s had an i m p o r t a n t e f f e c t on t h e g l o b a l p a t t e r n o f i t s o p e r a t i o n s . F i g u r e 7 ( n e x t page) shows t h a t i n i t s f i r s t d e c a d e a l m o s t 4 0 p e r c e n t o f t h e IBRD's new l o a n commitments were t o c o u n t r i e s i n E u r o p e , t h e Middle E a s t , and North A f r i c a m o s t l y t o W e s t e r n Europe. (The r e g i o n a l From 1947 t o 1956, t h e i n d u s t r i a l counc a t e g o r i e s a r e t h e Bank's.) t r i e s o f Western Europe and J a p a n were among t h e Bank's l a r g e s t b o r r o w e r s a s t h e y s o u g h t money t o r e b u i l d t h e i r war-torn economies. A s more d e v e l o p i n g c o u n t i e s j o i n e d t h e Bank i n t h e 19608, and a s t h e e s t a b l i s h m e n t o f t h e I D A made i t p o s s i b l e f o r t h e Bank t o expand l e n d i n g t o c o u n t r i e s t h a t were t o o poor t o a f f o r d many I B R D l o a n s , t h e l e v e l o f Bank l e n d i n g t o South Asia and A f r i c a i n c r e a s e d c o n s i d e r a b l y . The p r o p o r t i o n o f Bank l o a n commitments ( m a i n l y IBRD) t o c o u n t r i e s i n E u r o p e , t h e Middle E a s t , and North A f r i c a remained s i g n i f i c a n t . In t h i s r e g i o n , however, t h e f o c u s o f l e n d i n g s h i f t e d from Western Europe -- t o t h e Balkans and t h e r a p i d l y - g r o w i n g c o u n t r i e s o f t h e Arab world. Along w i t h J a p a n ( i n t h e E a s t Asia g r o u p , ) t h e Western European count r i e s and I s r a e l g r a d u a t e d £ r a n b e i n g b o r r o w e r s t o b e i n g s o u r c e s o f c a p i t a l o r d o n o r s f o r IBBD and I M o p e r a t i o n s . There remain some s i g n i f i c a n t c o n t r o v e r s i e s w i t h i n t h e Bank a b o u t t h e r e l a t i v e amounts which ahould b e l e n t t o d i f f e r e n t r e g i o n s . The arguments a r e p a r t i c u l a r l y a c c u t e r e g a r d i n g a l l o c a t i o n s of I D A f u n d s In t h e p a s t , I n d i a r e c e i v e d about 40 p e r c e n t o f I M ' s new commitments t h e r e s u l t o f a c e i l i n g which s t i p u l a t e d t h a t , i n t h e each year i n t e r e s t s o f g e o g r a p h i c d i v e r s i t y , n o more t h a n t h i s s h o u l d go t o any . -- F i g u r e 7. IBRD and I D A Lending by Region, Four Time Periods, 1947-85 ( m i 11i o n s o f US do1 l a r e q u i v a l e n t ) fl Western A f r i c a @ Eastern A f r i c a East A s i a 6 P a c i f i c South Asia L a t i n America Europe. H i d . East. C No. A f r i c a 0 fl Ueltern Africa b a t e r n Africa Enst h i a and P a c i f i c South Asia b c i n knerica Europe, Uiddle E a l t and North A f r i c a T I X A L , ALL REGIONS (Source: World Bank) o n e c o u n t r y . Some a n a l y s t s t h o u g h t t h i s was more t h a n I n d i a d e s e r v e d . O t h e r s s a i d i t was n o t e n o u g h , s i n c e I n d i a c o n t a i n e d o v e r 60 p e r c e n t o f t h e p e o p l e l i v i n g i n I D A - e l i g i b l e c o u n t r i e s . A f t e r China j o i n e d t h e Bank i n 1980, t h e q u e s t i o n about t h e p r o p e r a l l o c a t i o n o f I D A r e s o u r c e s t o o k on a new d i m e n s i o n . Some people t h o u g h t t h a t I n d i a and China s h o u l d e a c h g e t 40 p e r c e n t . O t h e r s c l a i m e d t h e y s h o u l d d i v i d e I n d i a ' s o r i g i n a l s h a r e . S t i l l o t h e r s wondered whether t h e two Asian g i a n t s s h o u l d b e e l i g i b l e f o r any IDA a i d a t a l l . The q u e s t i o n was n o t whether t h e y s h o u l d c e a s e r e c e i v i n g World Bank a s s i s t a n c e , b u t whether most o f i t s h o u l d be l e n t o n I B R D o r IDA t e r m s . The d e b a t e i s n o t y e t r e s o l v e d . China and I n d i a e a c h have t w i c e a s many p e o p l e a s d o e s Sub-Saharan A f r i c a . T h e i r economies a r e more complex and t h e i r advanced s e c t o r s a r e b e t t e r d e v e l o p e d . They a r e b o t h v e r y p o o r , howe v e r , and have s u b s t a n t i a l p o p u l a t i o n s i n g r e a t n e e d . Because t h e i r economies a r e more dynamic t h a n t h o s e o f most A f r i c a n c o u n t r i e s , t h e Asian c o u n t r i e s c a n p r o b a b l y make more e f f i c i e n t use o f a n y IDA a l l o c a t i o n s . On t h e o t h e r h a n d , t h e y c a n p r o b a b l y b e t t e r s u r v i v e a s h a r p c u t i n IDA a i d t h a n c a n t h e A f r i c a n s . In 1985, 35 p e r c e n t o f I D A ' S new commitments were t o A f r i c a n c o u n t r i e s , w h i l e 22 p e r c e n t were t o I n d i a and 1 1 p e r c e n t were t o China. As t h e g e o g r a p h i c f o c u s o f i t s l e n d i n g s h i f t e d , t h e s e c t o r a l emphases f o r World Bank l e n d i n g a l s o c h a n g e d . F i g u r e 8 ( n e x t page) shows t h e s e c t o r a l c o m p o s i t i o n o f ZBRD and I D A new l o a n commitments i n t h e p a s t f o r t y y e a r s . During t h e two post-war d e c a d e s , t h e Bank l e n t m a i n l y f o r e c o n m i c r e c o v e r y . Much l e n d i n g i n v o l v e d n o n - p r o j e c t l o a n s t o s t i m u l a t e growth and r e c o n s t r u c t i o n and t h e c o n s t r u c t i o n o f b a s i c t r a n s p o r t a t i o n , power, and i n d u s t r i a l f a c i l i t i e s . Lending f o r a g r i c u l t u r a l development was q u i t e l i m i t e d . I n t h e l a s t t w e n t y y e a r s , t h o u g h , a g r i c u l t u r e h a s become t h e l a r g e s t s i n g l e s e c t o r o f World Bank a c t i v i t y . The Bank h a s a l s o put an i n c r e a s i n g e m p h a s i s o n t a r g e t i n g a i d t o needy p e o p l e . In p a r t , t h i s h a s meant an i n c r e a s e i n l e n d i n g i n t h e "human s e r v i c e s " a r e a and i n l e n d i n g f o r s m a l l s c a l e i n d u s t r y . The Bank a l s o c l a i m s t h a t a major e f f o r t h a s b e e n made i n r e c e n t y e a r s w e n p r o j e c t s i n t h e i n f r a s t r u c t u r e a r e a (comt o design projects m u n i c a t i o n s , i n d u s t r y , e n e r g y ) -- so t h e y w i l l t a r g e t more b e n e f i t s t o t h e p o o r e r p e o p l e i n t h e borrower c o u n t r y . -- A t t h e same t i m e , however, t h e World Bank h a s a l s o s t a r t e d l o o k i n g h a r d e r a t economic p o l i c y i s s u e s . In t h e p r o c e s s , i t h a s r e p o r t e d l y made i t s l o a n s more c o n t i n g e n t on t h e p o l i c y r e f o r m s u n d e r t a k e n by t h e borrower c o u n t r y . The Bank h a s a l l o c a t e d an i n c r e a s e d p o r t i o n o f I B R D and I D A r e s o u r c e s f o r b r o a d - s c a l e m u l t i - s e c t o r l o a n s , p a r t i c u l a r l y s t r u c t u r a l a d j u s t m e n t l o a n s d e s i g n e d t o e n c o u r a g e economic It h a s a l s o i n c r e a s e d t h e p o l i c y change i n t h e b o r r o w e r c o u n t r i e s . p o r t i o n o f s e c t o r l e n d i n g which i s aimed a t u p g r a d i n g e f f i c i e n c y and r e f o r m i n g t h e p o l i c y e n v i r o n m e n t a f f e c t i n g b r o a d c a t e g o r i e s o f economic activity. -- Some c r i t i c s should focus mainly q u e s t i o n whether and a i d to t h e poor economic c a p a c i t y . -- p a r t i c u l a r l y t h o s e who t h i n k d e v e l o p n e n t f i n a n c e on t h e c o n s t r u c t i o n o f new p r o d u c t i v e f a c i l i t i e s t h e B a n k ' s new s t r e s s o n economic p o l i c y r e f o r m a r e compatible with t h e b a s i c w r k o f expanding Others p a r t i c u l a r l y t h o s e who a r e e s p e c i a l l y -- F i g u r e 8 . IBRO and I D A Loan Commitments by Sector f o r Four Periods, 1947-1985 ( m i l l i o n s of US d o l l a r e q u i v a l e n t ) A l l Other Human S e r v i c e s Non-Pro j e c t Social Infrastructure Communications Industry Energy Agriculture Inset HWAWSERVICES NOW-PROJECT 1947-56 - - -I J ~ d u c ai ot n ~ ~ o ~ u l a t i oHne a. l t h , and N u t r i t i o n Non-Project Lending ------- 6 . 9 9 5 . 0 1580.9 13.499.81 1,013.5 Technical A s s i s t a n c e SOCIAL Urbanization INFRASTRUCTURE Water Supply and Sewerage /Transportation 555.4 1.8 C ~ U N I C A T I O N S- Telecoapmunications Small-Scale I n d u s t r y Industry 236.5 Non-Fuel U i n e r a l r (Mines INDUSTRY Development F i n a n c e Companies 40.0 ENERGY 748.9 AGRICULTURE A g r i c u l t u r e and Rural Development $124.3 ---------- - 5.534.il 1 4 , 8 4 4 . 9 11,672.2 2,798.4 5,086.4 669.3 INDUSTRY 1- S29,319.7 --- - 2.720.4 CCHMUNICATIONS 7,878.5l ENERGY 5.843.0 15,967.01- ---- TOTAL, ALL SECTORS SOCIAL INFRASTRUCTURE - ------- - NON-PROJECT 58,145.5 $31,775.6 AGRICULTURE $106.660.3 (Source: World Bank) -- quesc o n c e r n e d about t h e h u m a n i t a r i a n a s p e c t s o f t h e a i d program t i o n whether t h e Bank's s t r e s s o n economic p o l i c y r e f o r m i s c o m p a t i b l e w i t h t h e g o a l o f t a r g e t i n g i n c r e a s e d b e n e f i t s t o t h e p o o r . Bank spokesmen c o n t e n d t h a t sound development r e q u i r e s sound p o l i c y and programs t o h e l p t h e p o o r , n o t m e r e l y t h e c o n s t r u c t i o n o f f a c i l i t i e s t o expand p o t e n t i a l o u t p u t . They a l s o s a y t h a t t h e r e i s no i n t r i n s i c c o n f l i c t between t h e g o a l s o f sound p o l i c y and h e l p f o r t h e poor. In many c o u n t r i e s , t h e y s a y , t h e poor w i l l s u f f e r most i f t h e i r n a t i o n a l economies c o l l a p s e b e c a u s e o f poor economic p o l i c y and f a i l u r e t o a d j u s t t o world economic r e a l i t i e s . 2 . Types o f World Bank Loans The World Bank h a s v a r i o u s t y p e s o f l o a n s which i t c a n u s e t o a c c a n p l i s h d i f f e r e n t d e v e l o p n e n t g o a l s . The l a r g e s t c a t e g- o r y- o f l o a n s , s p e c i f i c project loans, invblves the provision of finance for specific investments o r a c t i v i t i e s . This c a t e g o r y c o n s t i t u t e d 61 percent o f IBRD/IM l e n d i n g i n f i s c a l 1980 and 4 1 p e r c e n t i n 1984. Disbursement may t a k e 4 t o 9 y e a r s b e f o r e t h e p r o j e c t i s f u l l y c o m p l e t e d . The n e x t l a r g e s t c a t e g o r y i n v o l v e s l o a n s f o r s e c t o r o p e r a t i o n s . These r a n g e from a c t i v i t i e s t h a t a r e o n l y s l i g h t l y b r o a d e r i n s c o p e t h a n s p e c i f i c p r o j e c t s t o comprehensive a d j u s t m e n t o p e r a t i o n s t h a t i n v o l v e t h e e n t i r e s e c t o r o f t h e econany. S e c t o r i n v e s t m e n t and maint e n a n c e l o a n s , t h e sub-group most s i m i l a r t o p r o j e c t l e n d i n g , h a s b e e n a growing focus f o r Bank a c t i v i t y . T h i s t y p e i n v o l v e d some 27 p e r c e n t o f IBRDIIDA l e n d i n g i n f i s c a l 1984, c a n p a r e d t o 1 7 p e r c e n t f o r 1980. Loans t o f i n a n c i a l i n t e r m e d i a r i e s , a n o t h e r s u b - g r o u p , i s a mechanism f o r s t r e n g t h e n i n g l o c a l i n s t i t u t i o n s and f o r c h a n n e l i n g r e s o u r c e s t o s p e c i f i c kinds of r e c i p i e n t s . In f i s c a l 1984, s a n e 1 3 p e r c e n t o f I B R D I I D A l e n d i n g went t o i n t e r m e d i a r y o r g a n i z a t i o n s , c a n p a r e d w i t h 1 5 p e r c e n t i n 1980. S e c t o r a d j u s t m e n t l o a n s , aimed a t f i n a n c i n g t h e b a s i c r e s t r u c t u r i n g of economic a c t i v i t y and p o l i c y i n s p e c i f i c s e c t o r s o f t h e b o r r o w e r ' s economy, h a s been a growing e f f o r t i n r e c e n t y e a r s . In f i s c a l 1984, s u c h l o a n s i n v o l v e d a b o u t 9 p e r c e n t o f I B R D I I D A l e n d i n g , compared with 2 p e r c e n t i n 1981. These l o a n s f i n a n c e i m p o r t s f o r t h e s e c t o r , e i t h e r with p r e - i d e n t i f i e d b e n e f i c i a r i e s o r agreed c r i t e r i a f o r d i s t r i b u t i o n . Disbursement c a n be f a i r l y r a p i d , o v e r 1 t o 4 y e a r s d e p e n d i n g on t h e s i t u a t i o n . S t r u c t u r a l a d j u s t m e n t l o a n s (SALs) f o c u s o n economic r e f o r m and a d j u s t m e n t i n s e v e r a l s e c t o r s . Like s e c t o r a d j u s t m e n t l o a n s , t h e y a l s o f i n a n c e g e n e r a l c a t e g o r i e s o f i m p o r t s , p r o v i d i n g needed b a l a n c e o f payments s u p p o r t f o r an econany i n t r a n s i t i o n . SALs aim a t e f f e c t i n g c h a n g e s i n t h e c o u n t r y ' s a p p r o a c h t o economic p o l i c y , f o r e i g n e x c h a n g e and e x t e r n a l d e b t management, and p a r a s t a t a l (government-owned f i r m ) o p e r a t i o n s . Lending f o r SALs i n v o l v e d a b o u t 8 p e r c e n t o f I B R D I I D A l e n d i n g i n f i s c a l 1 9 8 4 , c a n p a r e d with 3 p e r c e n t i n 1980. SALs c a n b e q u i t e f a s t d i s b u r s i n g , w i t h a f u l l payout o f t h e l o a n i n 1 t o 3 y e a r s d e p e n d i n g on t h e s p e c i f i c s i t u a t i o n . T e c h n i c a l a s s i s t a n c e l o a n s . These l o a n s h e l p s t r e n g t h e n t h e capa c i t y o f l o c a l i n s t i t u t i o n s t o p r e p a r e development p o l i c i e s and i n v e s t m e n t s . In p r i o r y e a r s , t h e p r o v i s i o n o f e n g i n e e r i n g a d v i c e was t h e major e l e m e n t o f t h i s a i d . More r e c e n t l y , t h e p r o v i s i o n of p o l i c y s k i l l s and b r o a d e r economic a d v i c e have been t h e main f o c u s . T h i s t y p e o f a i d i s used p a r t i c u l a r l y i n A f r i c a , where t h e s h o r t a g e o f q u a l i f i e d managers and t e c h n i c i a n s i s e s p e c i a l 1y a c u t e . Of t e n , t h e World Bank l e n d s t h e b o r r o w e r c o u n t r y o r g a n i z a t i o n an e x p e r i e n c e d member o f i t s own s t a f f and c h a r g e s t h e a s s o c i a t e d c o s t s a g a i n s t t h e loan. In o t h e r c a s e s , t h e loan w i l l finance a c q u i s i t i o n o f o u t s i d e c o n s u l t a n t a d v i c e . Disbursement u s u a l l y t a k e s 2 t o 6 y e a r s . A s s i s t a n c e f o r emergency r e c o n s t r u c t i o n i s a l s o sometimes made a v a i l a b l e t o h e l p b o r r o w e r s cope w i t h t h e e f f e c t s o f n a t u r a l o r o t h e r d i s a s t e r s . Postwar r e c o n s t r u c t i o n was t h e major f o c u s o f World Bank l e n d i n g i n Europe and A s i a , f o r example, d u r i n g t h e e a r l y y e a r s o f t h e Bank. R e c o n s t r u c t i o n l o a n s a r e s t i l l a n i m p o r t a n t i n s t r u m e n t f o r World Bank a i d i n s p e c i f i c s i t u a t i o n s , a l t h o u g h t h e amounts l e n t f o r t h i s p u r p o s e w i l l depend on t h e number and t h e scope o f t h e d i s a s t e r s . Bank a i d may sometimes f i n a n c e t h e r e c o n s t r u c t i o n o f s p e c i f i c f a c i l i t i e s . More o f t e n , i t f i n a n c e s t h e i m p o r t a t i o n o f a broad r a n g e o f goods needed a s i m p u t s f o r t h e r e c o n s t r u c t i o n p r o c e s s . F u l l d i s b u r s e In f i s c a l 1984, t h e sank f i n a n c e d ment c a n t a k e from 1 t o 4 y e a r s . o n l y o n e such l o a n , w h e r e a s i t f i n a n c e d 1 2 i n f i s c a l y e a r s 1980-1981. ' Question 12: How d o e s t h e World Bank d e c i d e what l o a n s t o make? How d o e s i t p r e p a r e and m o n i t o r i t s l o a n s ? How d o e s i t know i t s funds a r e b e i n g used f o r t h e i r i n t e n d e d purposes? - 1 I I I I - 1. I Setting Priorities The World Bank's A r t i c l e s o f Agreement s p e c i f y t h a t , i n i t s l e n d i n g program, t h e "most u s e f u l and u r g e n t p r o j e c t s w i l l b e d e a l t w i t h The Bank klorks c l o s e l y w i t h t h e r e c i p i e n t government i n s e t first ting p r i o r i t i e s for each country. The Bank w i l l n o t make a l o a n o v e r t h e b o r r o w e r c o u n t r y ' s o b j e c t i o n , s i n c e t h e Bank r e q u i r e s t h a t t h e government g u a r a n t e e t h e repayment o f a l l l o a n s made t o e n t i t i e s w i t h i n its territory. Thus, t h e borrower g o v e r n m e n t ' s g o a l s and p l a n s c a n have a major impact on t h e p r i o r i t i e s and t h e s h a p e o f Bank l e n d i n g i n a s p e c i f i c c o u n t r y . T h e r e i s a g r e a t d e a l o f d i v e r s i t y among t h e B a n k ' s b o r r o w e r s i n t e r m s o f t h e i r a s s e t s , l e v e l s o f d e v e l o p m e n t , soci o c u l t u r a l p a t t e r n s , and p o l i t i c a l s y s t e m s . The Bank's r o l e i s m a i n l y o n e of p r o v i d i n g p r o f e s s i o n a l a d v i c e and s u p p o r t r e l e v a n t t o t h e b o r r o w e r ' s n e e d s . The Bank's p r i o r i t i e s , however, a r e n o t n e c e s s a r i l y t h o s e o f t h e b o r r o w e r c o u n t r y government. Through i t s own c o u n t r y economic and s e c t o r work and i t s d i a l o g w i t h t h e b o r r o w e r , t h e Bank d e v e l o p s i t s own a s s e s s m e n t o f t h e c o u n t r y ' s n e e d s and development p r i o r i t i e s . I n some c a s e s , s o u r c e s r e p o r t , t h e Bank may s e e k t o purs u a d e a r e l u c t a n t government t o g i v e c e r t a i n g o a l s and p r o j e c t s more c o n s i d e r a t i o n and h i g h e r p r i o r i t y . Ln o t h e r c a s e s , t h e Bank may r e j e c t ." government-sponsored p r o p o s a l s , o r a l l o w them t o l a n g u i s h , i f t h e Bank c o n s i d e r s them i n a p p r o p r i a t e o r c o n t r a r y t o i t s p e r c e p t i o n o f t h e c o u n t r y ' s n e e d s . When t h e Bank and t h e b o r r o w e r government d i s a g r e e about p r i o r i t i e s , s o u r c e s r e p o r t , t h e l e v e l o f Bank l e n d i n g w i l l gene r a l l y decline. 3 . P r o d u c t i v e Use The World Bank's A r t i c l e s o f Agreement s t a t e t h a t t h e Bank s h a l l C o n s e q u e n t l y , t h e Bank provide f i n a n c e " f o r productive purposes l e n d s o n l y f o r new p r o g r m s o r p r o j e c t s o r f o r i n c r e a s e s i n an e x i s t ing operation. It d o e s n o t r e f i n a n c e e x i s t i n g l o a n s o r make l o a n s f o r g e n e r a l g o v e r m e n t e x p e n s e s . L i k e w i s e , i t d o e s n o t l e n d f o r consumpt i o n ( f o r example, p u r c h a s e s o f food) o r f o r s t r a i g h t b a l a n c e of paym e n t s s u p p o r t . S e v e r a l s p e c i f i c i s s u e s s h o u l d be n o t e d , however. ." F i r s t , t h e b o r r o w e r c o u n t r y ' s own economic p o l i c i e s c a n have a m a j o r impact o n t h e e f f e c t i v e n e s s and p r o d u c t i v e n e s s o f World Bank l o a n s , Even i f a Bank l o a n i s t e c h n i c a l l y and e c o n o m i c a l l y s o u n d , i t c a n b e u n d e r c u t by g o v e r m e n t p o l i c i e s i n r e l a t e d a r e a s . A Bank a g r i c u l t u r e p r o j e c t might f a i l t o a c h i e v e i t s g o a l s , f o r example, b e c a u s e o f f i c i a l p r i c e c o n t r o l s t a k e away t h e i n c e n t i v e t o p r o d u c e o r b e c a u s e o t h e r government p o l i c i e s c a n p l i c a t e t h e s i t u a t i o n . A l s o , b e c a u s e o f t h e f u n g i b i l i t y o f money, t h e r e i s sometimes a q u e s t i o n whether t h e Bank i s f i n a n c i n g t h e p r o j e c t i t a p p r o v e s o r some o t h e r a c t i v i t y t h e borrower c o u n t r y i s u n d e r t a k i n g . When, f o r example, t h e Bank f u n d s a p r i o r i t y p r o j e c t t h a t t h e government might have f i n a n c e d with i t s own money, t h e Bank l o a n f r e e s t h e g o v e r n m e n t ' s r e s o u r c e s f o r some o t h e r use. I f t h e borrower u s e s t h o s e r e s o u r c e s f o r a d e v e l o p m e n t p r o j e c t o r some o t h e r sound i n v e s t m e n t , t h e Bank l o a n will have b e e n used p r o d u c t i v e l y . I f t h e b o r r o w e r u s e s i t s f u n d s f o r w a s t e f u l showc a s e p r o j e c t s o r some o t h e r unsound p u r p o s e s , however, t h e Bank l o a n may have had a l e s s p r o d u c t i v e e f f e c t . Second, t h e World Bank i s m a i n l y a p r o j e c t l e n d e r b u t , a s n o t e d b e f o r e , a s i g n i f i c a n t amount o f l e n d i n g i n r e c e n t y e a r s h a s gone f o r s t r u c t u r a l a d j u s t m e n t l o a n s , b r o a d s e c t o r l o a n s , and o t h e r s i m i l a r t y p e s o f n o n - p r o j e c t a i d . These l o a n s a l l aim a t promoting economic reform i n the b o r r o w r c o u n t r y by f i n a n c i n g a p o r t i o n o f t h e c o u n t r y ' s i m p o r t b i l l , and t h u s h e l p i n g u n d e r g i r d t h e econamy w h i l e t h e government moves ( i n a c c o r d a n c e w i t h commitments i t makes t o t h e Bank) t o r e s t r u c t u r e i t s economic s y s t e m and make b a s i c a d j u s t m e n t s i n economic p o l i c y . Whether t h e n o n - p r o j e c t l o a n i s u l t i m a t e l y a " p r o d u c t i v e purpose" w i l l depend on whether t h e r e s t r u c t u r i n g o f t h e n a t i o n a l economy o r t h e s e c t o r p r o v e s f r u i t f u l and whether t h e needed economic p o l i c y reforms take place. The Bank c o n t e n d s t h a t , i n i t s p o l i c y d i a l o g s w i t h b o r r o w e r count r i e s , p a r t i c u l a r a t t e n t i o n i s p a i d t o economic p o l i c y and t h e u s e t o which t h e c o u n t r y p u t s i t s own r e s o u r c e s . S o u r c e s s a y t h a t t h e Bank's p r o j e c t s e l e c t i o n p r o c e s s and i t s l o a n l e v e l s a r e s t r o n g l y i n f l u e n c e d by t h e B a n k ' s c o n c l u s i o n s a b o u t whether t h e b o r r o w e r i s making product i v e u s e o f i t s own f u n d s . P a r t i c u l a r l y with s t r u c t u r a l a d j u s t m e n t and s e c t o r l e n d i n g , t h e y r e p o r t , t h e economic s i t u a t i o n and p o l i c y e n v i r o w e n t a r e c l o s e l y s c r u t i n i z e d and l o a n d i s b u r s e m e n t s may b e suspended i f t h e Bank s t a f f d e c i d e s t h e b o r r o w e r c o u n t r y i s n o t h p l e m e n t i n g t h e l o a n a g r e e m e n t . The Bank's c r i t i c s c o n t e n d , however, t h a t t h e Bank i s o f t e n more i n t e r e s t e d i n t r a n s f e r r i n g r e s o u r c e s t o developi n g c o u n t r i e s t h a n i n s p u r r i n g p r o d u c t i v i t y o r promoting r e a l p o l i c y reform. The Bank may t a l k about t h e r i g o r o f i t s p o l i c y s c r u t i n y , b u t i n t h e e n d , t h e c r i t i c s s a y , i t i s more i n c l i n e d toward making t h e money a v a i l a b l e t h a n toward s t o p p i n g a l l d i s b u r s e m e n t s and new l e n d i n g f o r s p e c i f i c c o u n t r i e s u n t i l governments a g r e e t o pursue sound economic p o l i c i e s . Bank spokesmen a r g u e t h a t t h e i r p o l i c y r w i e w s a r e m e a n i n g f u l and l e n d i n g o r d i s b u r s e m e n t s a r e sometimes suspended un ti1 t h e b o r r o w e r c o m p l i e s w i t h t h e l o a n c o n d i t i o n s . Bank o f f i c i a l s admit t h e r e a r e l i m i t s o n what t h e Bank c a n d o i n p a r t i c u l a r s i t u a t i o n s . They a r g u e , however, t h a t t h e c r i t i c s have u n r e a l i s t i c i d e a s about t h e Bank' s c a p a c i t y f o r promoting fundamental changes i n t h e b o r r o w e r ' s d o m e s t i c s y s t a n o r f o r making governments adopt t h e Bank's economic p r i o r i t i e s . They a l s o n o t e t h a t o t h e r c r i t i c s s a y t h e World Bank i s t o o s t r i n g e n t and r e s t r i c t i v e n o t too e a s y o r p r o f l i g a t e in its l e n d i n g p r a c t i c e s . Many o f t h e s e o t h e r c r i t i c s a r e unhappy w i t h t h e i n c r e a s e s i n c o n d i t i o n a l i t y . Many a r e a l s o u p s e t b e c a u s e t h e Bank's t o t a l l o a n volume f e l l i n 1985 and because t h e Bank l e n t l e s s t h a n i t c o u l d have i n p r e v i o u s y e a r s . -- -- 3 . The Loan Review P r o c e s s Even though t h e World Bank u s u a l l y makes o n l y a b o u t 130 new ZBRD and 100 new I D A l o a n c a a m i t m e n t s a y e a r , i t may have a s many a s 700 t o 800 p r o j e c t s under c o n s i d e r a t i o n by t h e s t a f f a t a n y o n e t i m e . Dependi n g on i t s c a n p l e x i t y , a p r o j e c t may t a k e a s l o n g a s s e v e r a l y e a r s o r a s l i t t l e a s s e v e r a l months b e f o r e t h e p r o j e c t p r o p o s a l i s r e a d y f o r p r e s e n t a t i o n t o t h e Bank's Board of E x e c u t i v e D i r e c t o r s f o r p o s s i b l e a ppr ov a 1 . -- P r o s p e c t i v e l o a n s proceed t h r o u g h a s t a n d a r d s e r i e s o f s t e p s the socalled project cycle a s t h e y undergo c o n s i d e r a t i o n . In t h e i d e n t i f i c a t i o n phase o f t h e p r o c e s s , t h e Bank, t h e n a t i o n a l governm e n t , and t h e borrower i n s t i t u t i o n i d e n t i f y h i g h - p r i o r i t y p r o j e c t s t h a t s u p p o r t t h e d e s i r e d d e v e l o p n e n t s t r a t e g y , meet s e c t o t a l o b j e c t i v e s , and a p p e a r s u i t a b l e f o r Bank s u p p o r t . Next, i n t h e p r o j e c t p r e p a r a t i o n p h a s e , t h e borrower and Bank c l a r i f y t h e p r o j e c t ' s g o a l s and i d e n t i f y p o s s i b l e t e c h n i c a l , economic , f i n a n c i a l , and i n s t i t u t i o n a l i s s u e s . They u n d e r t a k e f e a s i b i l i t y s t u d i e s t o s h a r p e n t h e p l a n s , compare c o s t s and b e n e f i t s , and s t u d y a l t e r n a t i v e methods f o r e f f e c t i n g t h e proj e c t . During t h e a p p r a i s a l p h a s e , s t a f f m i s s i o n s v i s i t t h e proposed p r o-j e c t t o a s s e s s i t s t e c h n i c a l , economic, f i n a n c i a l , and i n s t i t u t i o n a l m e r i t s . The m i s s i o n t h e n recommends t h e t e r m s and c o n d i t i o n s o f t h e l o a n s t h a t a r e chosen f o r n e g o t i a t i o n . During t h e n e g o t i a t i o n p h a s e , t h e Bank and t h e borrower t r y t o a g r e e on t h e s t e p s needed t o c a r r y o u t t h e p r o j e c t . Legal l o a n documents a r e d r a f t e d . The Bank s a y s t h a t a l l t h e p r i n c i p a l i s s u e s r a i s e d p r i o r t o and d u r i n g t h e a p p r a i s a l s t a g e a r e d e a l t w i t h i n t h e l o a n document. Once t h e n e g o t i a t i o n s a r e c a n p l e t e d , t h e l o a n g o e s t o t h e Bank P r e s i d e n t and h i s l o a n r e v i e w com- -- mittee for possible approval. I f t h e Bank's t o p l e a d e r s h i p a g r e e s t o s u p p o r t t h e l o a n , t h e p r o p o s a l moves t o t h e Board o f E x e c u t i v e D i r e c t o r s f o r a p p r o v a l . The 21 manbers o f t h e b a r d o f E x e c u t i v e D i r e c t o r s a r e a p p o i n t e d o r e l e c t e d by t h e Bank's member c o u n t r i e s and t h e y s p e a k f o r governments i n o v e r s e e i n g Bank o p e r a t i o n s . V o t i n g i s o n a weighted v o t e b a s i s , p r o p o r t i o n a l t o e a c h c o u n t r y ' s s h a r e i n IBRD s u b s c r i p t i o n s o r I D A c o n t r i b u t i o n s . The E x e c u t i v e D i r e c t o r s (EDs) from t h e advanced i n d u s t r i a l c o u n t r i e s c o n t r o l o v e r h a l f t h e v o t e s , a l t h o u g h a s a p r a c t i c a l m a t t e r t h e Board u s u a l l y o p e r a t e s on a cons e n s u s b a s i s w i t h l i t t l e formal v o t i n g . I f t h e EDs a p p r o v e t h e proposed p r o j e c t , t h e i m p l e m e n t a t i o n , s u p e r v i s i o n , and e v a l u a t i o n s t e p s t a k e p l a c e . I h e Bank u s u a l l y p r o v i d e s o n l y p a r t i a l f u n d i n g o f t h e project u s u a l l y t h e f o r e i g n exchange c a n p o n e n t o f t h e c o s t while t h e borrower o r o t h e r l e n d e r s f i n a n c e t h e rest o f t h e c o s t . Bank m i s s i o n s may v i s i t t h e p r o j e c t f r e q u e n t l y t o o v e r s e e i t s i m p l e m e n t a t i o n and t o make c e r t a i n t h a t t h e b o r r o w e r a d h e r e s t o t h e p l a n s , s c h e d u l e s , and c o n d i t i o n s embodied i n t h e l o a n a g r e e m e n t . -- -- Once t h e l o a n i s a p p r o v e d , t h e World Bank o p e n s a l i n e o f c r e d i t f o r t h e p r o j e c t i n t h e b o r r o w e r ' s name. The b o r r o w e r d o e s n o t r e c e i v e t h e proceeds o f t h e loan a s a cash t r a n s f e r nor a r e funds d i s b u r s e d r i g h t away. The Bank r u l e s s a y t h e b o r r o w e r must award a l l c o n t r a c t s f o r p r o c u r i n g t h e goods and s e r v i c e s n e c e s s a r y f o r t h e p r o j e c t s ' s i m p l e m e n t a t i o n on t h e b a s i s o f l o w s t e v a l u a t e d b i d (i . e . , l o w e s t b i d b y a c a n p e t e n t b i d d e r .) The borrower u n d e r t a k e s t h e i m p l e m e n t a t i o n o f t h e p r o j e c t and t h e d i r e c t i o n o f t h e c o n t r a c t o r s . Bank s t a f f i n s p e c t p r o j e c t s , from t i m e t o t i m e , a s t h e y a r e implemented. As t h e work g o e s f o r w a r d , t h e b o r r o w e r s e n d s t h e b i l l s t o t h e World Bank. A f t e r i t c h e c k s t o b e c e r t a i n t h a t a l l t h e r u l e s and a g r e e m e n t s w e r e f o l l o w e d , t h e Bank d i s b u r s e s t h e f u n d s d i r e c t l y t o t h e c o n t r a c t o r o r r e i m b u r s e s t h e borrower f o r any q u a l i f y i n g payments t h e b o r r o w e r h a s a l r e a d y made. I I I Question 13: I I How much i n t e r e s t d o e s t h e World Bank c h a r g e f o r i t s Loans? I The World Bank c h a r g e s b o r r o w e r s o n e - h a l f o f one p e r c e n t more t h a n i t s own a v e r a g e c o s t o f b o r r o w i n g f o r t h e p r i o r s i x m o n t h s . ( F u n d s borrowed b e f o r e J u l y 1982 a r e n o t i n c l u d e d i n t h e c a l c u l a t i o n . ) I n t e r e s t i s c h a r g e d o n l y o n t h e d i s b u r s e d v a l u e o f l o a n s . The Bank a 1 s o l e v i e s a t h r e e - q u a r t e r s o f one p e r c e n t canmi tment f e e a n n u a l 1 y o n t h e u n d i s b u r s e d b a l a n c e o f l o a n s . Between J a n u a r y 1982 and J a n u a r y 1985, t o b o l s t e r i t s own r e v e n u e s , t h e Bank a l s o c h a r g e d i t s b o r r o w r s a one-time f r o n t - e n d f e e a t t h e t i m e t h e l o a n commitment was made. ( O r i g i n a l l y s e t a t 1 . 5 p e r c e n t o f t h e v a l u e o f t h e l o a n , t h e f r o n t - e n d f e e was lowered t w i c e , t o 0 . 7 5 p e r c e n t and t h e n t o 0 . 2 5 p e r c e n t , b e f o r e b e i n g e l i m i n a t e d i n J a n u a r y 1985.) B e f o r e J u l y 1982, t h e Bank's l o a n r a t e was reviewed q u a r t e r l y b u t Bank l o a n s e r e a l l f i x e d t h e r e was no set p e r i o d f o r r e v i s i o n s . r a t e and t h e i n t e r e s t r a t e was s e t a t t h e t i m e t h e l o a n canmitment was made. Bank l o a n s a r e g e n e r a l l y d i s b u r s e d o n l y a s t h e b i l l s from t h e c o n t r a c t o r s m r k i n g on t h e p r o j e c t a r e s u b m i t t e d . It u s u a l l y t a k e s 6 t o 9 y e a r s t o d i s b u r s e a l o a n f u l l y . On t h e a v e r a g e , a b o u t 5 p e r c e n t o f t h e p r o c e e d s a r e d i s b u r s e d i n t h e f i r s t y e a r and 6 5 p e r c e n t i n t h e n e x t f o u r y e a r s . T h i s made t h e Bank v u l n e r a b l e , u n d e r t h e o l d s y s t e m , t o major i n t e r e s t r a t e f l u c t u a t i o n s . I f i n t e r e s t r a t e s r o s e s h a r p l y d u r i n g t h e p e r i o d between t h e t i m e o f t h e o r i g i n a l l o a n cunmitment and t h e t i m e t h e Bank borrowed f u n d s with which t o make t h e d i s b u r s e m e n t , t h e Bank c o u l d f i n d i t s e l f l e n d i n g f u n d s f o r a lower i n t e r e s t c h a r g e t h a n it was paying f o r t h e money. T h e r e f o r e , i n J u l y 1982, t h e Bank i n s t i t u t e d a new s y s t e m of v a r i a b l e i n t e r e s t r a t e s . The i n t e r e s t c h a r g e i s no l o n g e r set a t t h e t i m e t h e l o a n commitment i s a p p r o v e d . R a t h e r , t h e Bank's l o a n i s a d j u s t e d every s i x months, i n o r d e r t o r e f l e c t s h i f t s i n t h e average c o s t o f c u r r e n t b o r r o w i n g s . The v a r i a b l e r a t e system a p p l i e s t o a l l l o a n s approved s i n c e 1982, b e t h e y l o a n s where d i s b u r s e m e n t s a r e s t i l l underway o r l o a n s which have been f u l l y d i s b u r s e d . F i g u r e 9 shows t h e loan r a t e s i n e f f e c t for the past s i x years. The Bank c h a r g e s i t s b o r r o w e r s t h e same i n t e r e s t r a t e r e g a r d l e s s o f t h e c u r r e n c i e s i n which l o a n s a r e d i s b u r s e d . 'Ihus, l o a n s d i s b u r s e d m a i n l y i n c u r r e n c i e s w i t h h i g h e r - t h a n - a v e r a g e i n t e r e s t r a t e s ( e .g , most r e c e c t l y , d o l l a r s ) may b e c h a r g e d a r a t e which i s l e s s t h a n comp a r a b l e c h a r g e s f o r commercial l o a n s i n v o l v i n g t h e same c u r r e n c i e s . . F i g u r e 9. World Bank Loan Rates, July 1980 t o Present (percentages) Aly Jan July 1980 1981 (Source: Jan * 1982 July JMI Ally &I July JM Aly 1985 s Change a c t u a l l y e f f e c t e d in Sept 1981 1983 1984 World Bank a n n u a l r e p o r t s and I n f o r m a t i o n and P u b l i c A f f a i r s Department) Jm 1986 S i m i l a r l y , l o a n s d i s b u r s e d i n c u r r e n c i e s w i t h below-average i n t e r e s t r a t e s may c o s t t h e World Bank borrower a h i g h e r rate t h a n s i m i l a r comm e r c i a l l o a n s . The borrower h a s no c h o i c e i n t h e c u r r e n c i e s i n which t h e l o a n is d i s b u r s e d . The borrower assumes t h e f o r e i g n exchange r i s k . The borrower pays a n i n t e r e s t c h a r g e which i s based on t h e Bank's a v e r a g e c o s t o f c a p i t a l , however, n o t on t h e exchange r i s k of t h e c u r r e n c y i t r e c e i v e s . Thus, t h e r e i s c e r t a i n amount o f c r o s s - s u b s i d y among t h e b o r r o w e r s . Depending on t h e i r l u c k i n g e t t i n g d i s b u r s e m e n t s i n one c u r r e n c y o r while o t h e r c o u n t r i e s f a c e a n o t h e r , some c o u n t r i e s f a c e h i g h e r lower exchange r a t e r i s k s on t h e i r d i s b u r s e d l o a n s , though t h e y a l l pay t h e same i n t e r e s t rates. The s i t u a t i o n may a v e r a g e o u t i n t h e l o n g r u n i f t h e c u r r e n c y mix f o r t h e b o r r o w e r s ' s u c c e s s i v e l o a n s more c l o s e l y a p p r o x i m a t e s t h e p a t t e r n f o r t h e Bank's o v e r a l l b o r r o w i n g s . -- -- I I I Q u e s t i o n 14: I How much money h a s t h e World Bank l e n t t o communist c o u n t r i e s ? Seven communist c o u n t r i e s a r e members of t h e World Bank and i t s a f f i l i a t e s : C h i n a , Hungary, Kampuchea, Laos, Romania, Vietnam, and Y u g o s l a v i a . The World Bank h a s l e n t them a t o t a l of $10.536 b i l l i o n , a p r o x i m a t e l y 9.4 p e r c e n t o f t h e money l e n t by t h e World Bank s i n c e t h e IBRD and I D A were c r e a t e d . T a b l e 4 shows t h e amounts l e n t t o e a c h communist c o u n t r y . The sums were a l l l e n t s i n c e t h e communist regimes i n t h e s e c o u n t r i e s took power. T a b l e 3 . World Bank Loans t o Communist C o u n t r i e s , Cumulative t o 1985 and 1981-85 ( m i l l i o n s of d o l l a r s ) I BRD Cumulative IDA Total $1,838.7 $1,176.2 $3,014.9 802.9 802.9 --------- 2,184.3 6.1 4,525.2 --------- 53.2 ----- 47.0 ----- ---a- 53.2 2,184.3 53.1 4,525.2 pzGGK-) 1 1981-5 Only IDA I Country / China 1$1,738.7 $1,076.2 $2,814.9 Hungary 802.9 802.9 Kampuchea Laos 53.2 53.2 681.5 681.5 Romania 1 6.1 Vietnam 47 .O 53.1 1,841.1 ~ u g o s l a v i a l 1,841.1 I / 1 I IBRD ----- ----- --------- Total ----- ----- ----- Another $1.638 b i l l i o n h a s a l s o b e e n l e n t t o a second g r o u p of c o u n t r i e s , i n c l u d i n g A f g h a n i s t a n ($230.1 m i l l i o n ) , E t h i o p i a ($879.7 m i l l i o n ) , N i c a r a g u a ($293.6 m i l l i o n ) , Mozambique ($45.0 m i l l i o n ) , a n d c o u n t r i e s with l e f t i s t regimes t h a t S o u t h Yemen ($189.9 m i l l i o n ) r e c e n t l y have been of f o r e i g n p o l i c y c o n c e r n t o t h e U n i t e d S t a t e s . Most o f t h e f u n d s f o r A f g h a n i s t a n , E t h i o p i a , and N i c a r a g u a were l e n t b e f o r e t h e i r c u r r e n t gOVemmentS t o o k power* -- I1 I I1 Q u e s t i o n 15: How s i m i l a r i s t h e c o u n t r y p a t t e r n f o r World Bank l e n d i n g and U.S. b i l a t e r a l economic a i d ? I H i s t o r i c a l l y , t h e r e i s much s i m i l a r i t y i n t h e g e n e r a l p a t t e r n of World Bank l e n d i n g and U.S. b i l a t e r a l economic a i d . As t h e l e f t - h a n d India, columns of T a b l e 5 ( n e x t page) i n d i c a t e , t w e l v e c o u n t r i e s B r a z i l , I n d o n e s i a , Turkey, Korea, Colombia, Y u g o s l a v i a , P a k i s t a n , t h e P h i l i p p i n e s , Egypt, Bangladesh, and Morocco have been among t h e t o p 20 r e c i p i e n t s of World Bank and US economic a s s i s t a n c e c u m u l a t i v e t h r o u g h 1985. -- -- I n r e c e n t y e a r s , a s t h e r i g h t - h a n d columns of t h e t a b l e show, t h e r e h a s a l s o been a major o v e r l a p i n t h e p a t t e r n s of U.S. and World E g y p t , P a k i s t a n , Turkey, I n d i a , Bangladesh, Bank a i d . Ten c o u n t r i e s t h e P h i l i p p i n e s , I n d o n e s i a , Morocco, P e r u , and Kenya a r e among t h e t o p 20 r e c i p i e n t s f o r b o t h U.S. and World Bank a i d . I n t h e past 10 y e a r s , however, t h e r e h a s been a s h i f t i n t h e b a s i c p u r p o s e and f o c u s of U.S. f o r e i g n a i d . Except i n t h e c a s e o f I s r a e l , t h e United S t a t e s no l o n g e r p r o v i d e s s u b s t a n t i a l amounts of economic a i d t o middle-income c o u n t r i e s . I n s t e a d , t h e U.S. t a r g e t s t h e b u l k of i t s a i d e i t h e r t o c o u n t r i e s of s t r a t e g i c f o r e i g n p o l i c y s i g n i f i c a n c e o r t o t h e p o o r e s t d e v e l o p i n g n a t i o n s . The World Bank c o n t i n u e s , w i t h U.S. s u p p o r t , t o such a s B r a z i l , p r o v i d e s u b s t a n t i a l amounts of a i d t o c o u n t r i e s Mexico, Korea, Y u g o s l a v i a whose p e r c a p i t a income l e v e l s a r e t o o h i g h t o q u a l i f y f o r much U.S. economic a i d . For s t r a t e g i c and h i s t o r i c r e a s o n s , t h e U.S. l i s t i n c l u d e s more L a t i n American c o u n t r i e s t h a n d o e s t h e World Bank l i s t . (Those c o u n t r i e s a l s o r e c e i v e m u l t i l a t e r a l a s s i s t a n c e from t h e Inter-American Development Bank.) The T h a i l a n d , Colombia, World Bank l i s t i n c l u d e s s e v e r a l o t h e r c o u n t r i e s which have been s i g n i f i c a n t r e c i p i e n t s of U.S. b i l a t e r a l and N i g e r i a a i d . It a l s o i n c l u d e s Mexico, a c o u n t r y which h a s c h o s e n ( f o r d o m e s t i c p o l i t i c a l r e a s o n s ) n o t t o a c c e p t b i l a t e r a l a s s i s t a n c e from t h e United S t a t e s . On t h e o t h e r hand, t h e World Bank l i s t a l s o i n c l u d e s t h r e e communist c o u n t r i e s t h a t r e c e i v e no U.S. a i d . With two of t h e s e China and Y u g o s l a v i a t h e United S t a t e s h a s c o o p e r a t i v e r e l a t i o n s . I s r a e l , t h e l a r g e s t r e c i p i e n t o f U.S. a i d i n t h e r e c e n t p e r i o d , h a s a c h i e v e d a l e v e l of p e r c a p i t a income a t which i t i s no l o n g e r e l i g i b l e f o r World Bank a i d . -- -- -- -- -- -- -- -- U.S. Aid t o Developing C o u n t r i e s (1946-85) Egypt $13,852.2 India 11,217.7 Israel 10,800 .O Vietnam 6,947.2 Pakistan 6,729.2 Korea 6,048.7 Philippines 2,941.0 Brazil 2,429.1 Taiwan, China 2,206.9 Bangladesh 2,188.0 Yugoslavia 2,109.1 Greece 1,910.3 Jordan 1,588.2 E l Salvador 1,446.5 Colombia 1,393.7 Morocco 1,377.0 Chile 1,180.6 Peru 1,120.5 Spain 1,120.0 Portugal 1,028.0 World Bank (1946-85) India $22,151.8 Brazil 11,464.6 Indonesia 8,922.9 Mexico 7,914.1 Turkey 6,117.9 Korea 5,915.8 Colombia 4,870.3 Y u g o s l a v i a 4,525.2 P h i l i p p i n e s 4,437.9 Pakistan 3,928.7 Egypt 3,731.5 Thailand 3,731.5 Bangladesh 3,251.7 China 3,014.9 Morocco 2,768.2 Nigeria 2,728.2 Roman f a 2,184.3 Argentina 2,098.3 1,902.8 Kenya Algeria 1,881.0 B i l a t e r a l Economic Aid India $7,219.3 Indonesia 4,584.8 Brazil 4,013.9 Turkey 2,162.2 Mexico 2,062.2 Korea 1,996.5 China 1763.9 Pakistan 1,288.3 Y u g o s l a v i a 1,263.5 Colombia 1,250.0 Egypt 1,071.3 Bangladesh 1,026.4 Philippines 939.9 Hungary 802.6 Morocco 781.6 Algeria 680 .O Nigeria 677 .O Thailand 658.2 Peru 455.7 Kenya 441 .O World Bank Israel $3,645.0 Egypt 3,333.2 E l S a l v a d o r 1,001.0 Pakistan 871.7 Turkey 601.4 588.0 Costa R i c a India 587.9 Sudan 559.4 Bangladesh 533.3 Philippines 434.3 Honduras 41 5.2 Jamaica 370.3 Indonesia 346.6 Dominican Rep. 327.5 Morocco 237.2 S r i Lanka 221.6 Peru 219.0 Kenya 210.0 Liberia 196.5 Senegal 192.4 U.S. Aid t o Developing C o u n t r i e s Top Twenty, 1983-5 P e r i o d Only The Top 20 R e c i p i e n t s o f World Bank Loans and U.S. (millions of dollars) Top Twenty, Cumulative t h r o u g h 1985 T a b l e 4. I-' W I g V) CRS- 3 2 IV. U. S / . PARTICIPATION I N THE WORLD BANK Q u e s t i o n 16: How much h a v e t h e U n i t e d S t a t e s and o t h e r member c o u n t r i e s c o n t r i b u t e d t o t h e World Bank and i t s a f f i l i a t e s ? -1 F i g u r e s 1 0 , 1 1 , and 12 show t h e s i z e , i n c u r r e n t d o l l a r s , f o r t h e p a s t IBRD and IFC c a p i t a l i n c r e a s e s and I D A r e p l e n i s h m e n t s and t h e U.S. s h a r e o f e a c h . I n t h e c a s e o f t h e IBRD ( f i g u r e 111, t h e U.S. s h a r e o f t h e Bank's g e n e r a l c a p i t a l i n c r e a s e s ( i n 1944, 1959, and 1981) h a s d e c l i n e d from 3 2 t o 20 p e r c e n t o f t h e t o t a l w h i l e t h e U.S. o r not a t a l l i n the selective participated only marginally c a p i t a l i n c r e a s e s (1963 t o 1977) which were d e s i g n e d t o a d j u s t owners h i p s h a r e s a s c o u n t r i e s changed i n economic power and new c o u n t r i e s j o i n e d t h e Bank. The U.S. s h a r e i n I D A r e p l e n i s h m e n t s h a s d e c l i n e d o v e r t h e y e a r s , a s f i g u r e 10 i n d i c a t e s , from 4 2 . 5 p e r c e n t i n 1960 t o -- -- F i g u r e 12. C o n t r i b u t i o n s t o IDA US S h a r e i n I n i t i a l IDA D c o n t r i b u t i o n and i n Each Subsequent Replenishment I UY 10 T ~ U S C o n t r i b u t i o n s " '1 0 ' Other Countries' Contributions Initial IM 1 1963 IDA 2 1968 IDA 3 1971 IDA 4 1974 IDA 5 1977 IDA 19W Total Size $754.5 million I Initial 750.0 million 1 I,200.0 million 2 2.400.0 million 3 4.500.0 million IDA 4 7,700.0million IDA 5 12.000.0 million IDA 6 + 1,720.0 million Supplement 9.000.0 million IDA 7 IDA IDA IDA IDA Merged U.S. Contribut~on $320.3 millLon 312.0 million 480.0 million 960.0 mlllion 1,500.0 million 2 , 4 0 0 . 0million 3,ZbO.O mlllion 0.0 2,250.0 million IDA 6i1 1901 IDA 7 1 m U.S. Share L2.5 percent 41.6 percent 4 0 . 0 percent 40.0 percent 3 3 . 3 percent 31.0 percent 27.0 percent 0.0 percent 25.0 percent Excludes 5120 million paid in 1972 and 5161 million paid In 1974 as maintenance of value payments follovlng devaluations of the dollar. IDA 6 plus $1.72 billion in additional resources contributed by ocher countries to supplement IDA'S 1984 operatione. U . S . share in IDA 6 was 27 percent. 5 Subsequently raised to $942.9 million as other countries later jolned and made their initial IDA contributione. These additional contributions reduced the US share in the inltial IDA contribution to 33.9 percent. + ( s o u r c e : World ~ a n k ) F i g u r e 2 . S u b s c r i p t i o n s t o IBRD C a p i t a l , 1944-81 US Share o f I n i t i a l and Each Subsequent C a p i t a l I n c r e a s e US C a l l a b l e US P a i d - i n non-US C a l l a b l e non-US P a i d - i n 1944-6 1959 1963 Initial Increase Increase 1965 Increase Total Size I n i t i a l Subscription General Increase Selective Increase Selective Increase Selective Increase Selective Increase General Increase Selective Increase + $7.67 11.00 1.00 2.00 3.00 8.40 40 .OO 4.00 1970 i9n Increase Proportion Callable 1981 Increase U.S. Increase Subscription b i l l i o n § 90 p e r c e n t $3.175 b i l l i o n billion 100 p e r c e n t 3.175 b i l l i o n billion 90 percent 0.0 billion 90 p e r c e n t 0.0 billion 90 p e r c e n t 0.246 b i l l i o n billion 90 p e r c e n t 1.570 b i l l i o n billion 92.5 p e r c e n t 8.777 b i l l i o n billion 100 p e r c e n t 0.030 b i l l i o n + U.S. 41.4 28.9 0.0 0.0 8.2 18.7 21.9 0.8 Share percent percent percent percent percent percent percent percent E x c l u d e s $560 m i l l i o n ( $ 5 1 m i l l i o n o f i t p a i d i n ) subscribed i n 1972 and $774 m i l l i o n ( $ 7 1 m i l l i o n o f i t p a i d i n ) s u b c r i b e d i n 1974 a s m a i n t e n a n c e o f v a l u e payments f o l l o w i n g d e v a l u a t i o n s of t h e d o l l a r . As o n l y h a l f t h e n e c e s s a r y f u n d s e r e a p p r o p r i a t e d , t h e US s u b s c r i b e d t o o n l y h a l f t h e s h a r e s v h i c h t h e U n i t e d S t a t e s was a l l o w e d t o s u b s c r i b e under t e r n s o f t h e 1970 IBm c a p i t a l i n c r e a s e agreement. S u b s e q u e n t l y r a i s e d t o $10.0 b i l l i o n a s o t h e r c o u n t r i e s j o i n e d and s u b s c r i b e d t h e i r i n i t i a l c a p i t a l . These a d d i t i o n a l s u b s c r i p t i o n s reduced t h e US s h a r e i n t h e i n i t i a l IBRD s u b s c r i p t i o n t o 31.8 p e r c e n t . F i g u r e 11. S u b s c r i p t i o n s t o IFC = US Share o f I n i t i * 1955 Initial 1955 I n i t i a l 1977 I n c r e a s e 1985 I n c r e a s e * 1977 Increase 1985 a Increase and Each Subsequent IFC Capital Increase US S u b s c r i p t i o n s Other C o u n t r i e s ' Subscript ions Total Size U.S. S u b s c r i p t ~ o n U.S. S h a r e $78.3 million S 650.0 million 650.0 m i l l i o n $35.2 milllon 111.5 m i l l i o n 175.2 m i l l i o n 45.0 percent 17.2 percent 27.0 percent I n a d d i t i o n t o t h e f u n d s o b t a i n e d t h r o u g h c o u n t r y a u b r c r i p t l o n a , t h e IPC had borrowed $ 1 . 1 7 b i l l l o n from t h e IBRD a s o f J u n e 3 0 , 1985. 4 S u b s e q u e n t l y r a i s e d t o $100 m i l l i o n a s o t h e r c o u n t r i e s j o r n e d and s u b a c r l b e d t h e i r i n i t i a l c o n t r i b u t i o n s . These a d d i t i o n a l s u b s c r i p t i o n s reduced t h e US s h a r e of t h e l n i t i a i r u b s c r i p c i u n t o 3 5 . 2 p e r c e n t . 2 5 p e r c e n t i n 1985. The lowered U.S. s h a r e o f t h e I D A s i x t h r e p l e n i s h m e n t (IDA 6 ) i s due t o t h e f a c t t h a t t h e United S t a t e s d e c i d e d t o make i t s c o n t r i b u t i o n s over f o u r y e a r s , while t h e o t h e r I D A d o n o r s adhered t o t h e o r i g i n a l t h r e e y e a r s c h e d u l e . The o t h e r d o n o r count r i e s t h e n a g r e e d t o p r o v i d e a d d i t i o n a l money, o v e r and above t h e i r o r i g i n a l c o n t r i b u t i o n s , s o IDA would have enough r e s o u r c e s t o cont i n u e i t s r e g u l a r lending o p e r a t i o n s during t h a t fourth year. 1 I 1 I 1. I Q u e s t i o n 17: How d o e s t h e United S t a t e s make p o l i c y t o w a r d s t h e World Bank? I I I E x e c u t i v e Branch The T r e a s u r y Lkpartment h a s t h e l e a d r o l e i n t h e A d m i n i s t r a t i o n a s r e g a r d s U.S. p o l i c y towards t h e World Bank. By e x e c u t i v e o r d e r , t h e P r e s i d e n t h a s d e l e g a t e d t o t h e S e c r e t a r y o f t h e Treasury h i s autho r i t y under l a w t o i n s t r u c t t h e U.S. r e p r e s e n t a t i v e s t o t h e i n t e r n a tional financial institutions W i t h i n t h e T r e a s u r y Department, t h e A s s i s t a n t S e c r e t a r y f o r I n t e r n a t i o n a l A f f a i r s manages U.S. p a r t i c i p a t i o n i n t h e m u l t i l a t e r a l banks. . O t h e r a g e n c i e s a r e a l s o i n v o l v e d , however, i n d i r e c t i n g U. S. p o l i c y t o w a r d s t h e b a n k s . The E x e c u t i v e Branch n o r m a l l y works o u t i t s p o l i c y t h r o u g h a formal i n t e r a g e n c y committee p r o c e s s . ' h i s g i v e s o t h e r d e p a r t m e n t s o p p o r t u n i t i e s t o s p e a k t o MDB i s s u e s which e f f e c t o r c o n c e r n them. A t p r e s e n t , t h e Working Group on M u l t i l a t e r a l A s s i s t a n c e (WGMA) i s t h e p r i n c i p a l i n s t r u m e n t f o r c o o r d i n a t ing i n t e r a g e n c y views on upcaning l o a n s and o t h e r o p e r a t i o n a l o r p o l i c y i s s u e s . Another p a n e l , t h e N a t i o n a l Advisory Council on I n t e r n a t i o n a l Monetary and F i n a n c i a l P o l i c i e s (NAC) , i s t h e p r i n c i p a l forum f o r c o o r d i n a t i n g t h e f i n a n c i a l a s p e c t s o f MDB i s s u e s . ( B e f o r e t h e WGMA was c r e a t e d i n 1979, t h e NAC was t h e main v e h i c l e f o r c o o r d i n a t i n g a l l a s p e c t s of U.S. p o l i c y t o w a r d s t h e m u l t i l a t e r a l b a n k s . ) While t h e T r e a s u r y h a s t h e l e a d i n g r o l e i n t h e i n t e r a g e n c y MDB p o l i c y p r o c e s s , t h e S t a t e Department i s a l s o a major f o r c e by v i r t u e o f i t s r e s p o n s i b i l i t i e s f o r U.S. f o r e i g n p o l i c y and i t s knowledge a b o u t i n t e r n a t i o n a l a f f a i r s . The Agency f o r I n t e r n a t i o n a l Development and t h e F e d e r a l Reserve Board a r e a l s o i m p o r t a n t p a r t i c i p a n t s , by v i r t u e o f t h e i r s p e c i a l r e s p o n s i b i l i t i e s i n t h e a r e a s o f i n t e r n a t i o n a l development and i n t e r n a t i o n a l f i n a n c i a l p o l i c y . O t h e r part icipa ting agencies t h e A g r i c u l t u r e and Commerce Department s and t h e Export-Import Bank, f o r example have a more l i m i t e d r o l e i n t h e p r o c e s s . T h e i r i n f l u e n c e i s g e n e r a l l y p r e s c r i b e d by t h e s p h e r e o f t h e i r own i n s t i t u t i o n a l c o n c e r n s and t h e ways MDB a c t i v i t i e s i n f l u e n c e t h e i r own o p e r a t i o n s . -- -- 2 . Congress C o n g r e s s h a s had a m a j o r r o l e , o v e r t h e y e a r s , i n t h e formulat i o n of U. S. p o l i c y towards t h e World Bank and t h e o t h e r m u l t i l a t e r a l development a g e n c i e s . U n l e s s Congress p a s s e s t h e n e c e s s a r y l a w s t o a u t h o r i z e U.S. p a r t i c i p a t i o n i n m u l t i l a t e r a l bank f u n d i n g p l a n s and t o a p p r o p r i a t e t h e n e c e s s a r y f u n d s , t h e United S t a t e s c a n n e i t h e r j o i n t h e s e i n s t i t u t i o n s n o r make c o n t r i b u t i o n s o r s u b s c r i p t i o n s t o them. F u r t h e r m o r e , from t i m e t o t i m e , Congress h a s e n a c t e d r e q u i r e ments i n i t s a u t h o r i z a t i o n and a p p r o p r i a t i o n a c t s , r e q u i r i n g t h e U.S. r e p r e s e n t a t i v e s a t t h e m u l t i l a t e r a l banks t o v o t e i n c e r t a i n ways o r d i r e c t i n g t h e Administration t o t a k e c e r t a i n a c t i o n s towards t h e MDBs. L e a d e r s h i p and o v e r s i g h t r e s p o n s i b i l i t y o n MDB l e g i s l a t i v e m a t t e r s i s d i f f u s e d w i t h i n Congress. The S e n a t e F o r e i g n R e l a t i o n s Committee and t h e House Banking Committee have t h e r e s p o n s i b i l i t y f o r managing MDB a u t h o r i z i n g l e g i s l a t i o n , w h i l e t h e F o r e i g n O p e r a t i o n s A p p r o p r i a t i o n s Subcommittees o f t h e House and S e n a t e A p p r o p r i a t i o n s Canmi t t e e s h a n d l e t h e a p p r o p r i a t i o n s l e g i s l a t i o n . Given t h e i n c r e a s e d r o l e t h e b u d g e t a r y p r o c e s s h a s had on c o n g r e s s i o n a l p r o c e d u r e s i n r e c e n t y e a r s , t h e House and S e n a t e Budget Committees have a l s o played a key r o l e i n s p e c i f y i n g o v e r a l l b u d g e t g u i d e l i n e s f o r t h e MDB program. 1 Question 18: I 1 I What i s U.S. P o l i c y Towards t h e World Bank and t h e O t h e r hl t i l a t e r a1 Development Agencies? I I I I H i s t o r i c a l l y , t h e United S t a t e s h a s played a l e a d i n g r o l e i n t h e m u l t i l a t e r a l development b a n k s . It was i n s t r u m e n t a l i n t h e e s t a b l i s h ment o f t h e World Bank and i n t h e e x p a n s i o n o f m u l t i l a t e r a l d e v e l o p ment b a n k s ' f i n a n c i a l r e s o u r c e s . Over t h e y e a r s , U.S. l e a d e r s h a v e c l a i m e d t h a t t h r e e b a s i c c o n c e r n s were s e r v e d by a c t i v e U. S. p a r t i c i p a t i o n i n t h e b a n k s . F i r s t , t h e y s a i d , h u m a n i t a r i a n and development Second, t h e y g o a l s were s e r v e d t h r o u g h e x p a n s i o n o f t h e MDB programs. a r g u e d , U.S. economic and f i n a n c i a l i n t e r e s t s were s e r v e d t h r o u g h t h e t r a d e t h e s e i n t e r n a t i o n a l a g e n c i e s g e n e r a t e d and t h r o u g h t h e i r s t a b i l i z i n g i n f l u e n c e o n t h e world economy. T h i r d , t h e y s t a t e d , f u n d a m e n t a l U. S. n a t i o n a l s e c u r i t y and d i p l o m a t i c g o a l s were s e r v e d a s t h e MDBs' p r m o t e d development and c h a n n e l e d r e s o u r c e s t o c o u n t r i e s o f f o r e i g n p o l i c y s i g n i f i c a n c e t o t h e United S t a t e s . A t t h e same time t h a t many were s e e k i n g t o expand t h e s i z e and impact o f t h e m u l t i l a t e r a l development b a n k s , however, t h e r e was a l s o a growing r e s i s t a n c e i n o t h e r q u a r t e r s o f t h e U.S. p o l i t i c a l s c e n e . C r i t i c s m a i n t a i n e d t h a t t h e i n c r e a s e i n MDB a i d d i v e r t e d r e s o u r c e s away f r m b i l a t e r a l programs where t h e impact o n U.S. f o r e i g n p o l i c y g o a l s m i g h t b e more d i r e c t and p a l p a b l e . Critics wrried that the donor c o u n t r i e s c o u l d n o t c o n t r o l t h e way t h e MDBs used t h e i r f u n d s and t h a t , on some o c c a s i o n s , t h e MDBs made l o a n s t o c o u n t r i e s with which t h e United S t a t e s had s e r i o u s f o r e i g n p o l i c y d i s p u t e s . C r i t i c s a l s o d i s l i k e d many o f t h e economic p o l i c i e s pursued by t h e World Bank and t h e o t h e r m u l t i l a t e r a l a g e n c i e s , o n t h e g r o u n d s t h a t t h e y b e l i e v e d t h e s e p o l i c i e s promoted s t a t e d o m i n a t i o n o f d e v e l o p i n g c o u n t r i e s ' economies and e x c e s s i v e a n p h a s i s o n income r e d i s t r i b u t i o n r a t h e r t h a n growth. In 1980, c a n d i d a t e Ronald Reagan campaigned a g a i n s t t h e growing s i z e o f t h e m u l t i l a t e r a l bank program. The 1980 Republican p a r t y platform s t r e s s e d the value of b i l a t e r a l r a t h e r than m u l t i l a t e r a l a i d . "A Republican A d m i n i s t r a t i o n w i l l emphasize b i l a t e r a l a s s i s t a n c e proi t s a i d . " B i l a t e r a l programs p r o v i d e t h e grams whenever p o s s i b l e , " b e s t a s s u r a n c e t h a t a i d programs w i l l be f u l l y a c c o u n t a b l e t o t h e American t a x p a y e r and w h o l l y c o n s i s t e n t w i t h o u r f o r e i g n p o l i c y i n t e r The Reagan A d m i n i s t r a t i o n f s own t r a n s i t i o n team f o r i n t e r n a ests t i o n a l f i n a n c i a l i n s t i t u t i o n s d e l i v e r e d a r e p o r t t o t h e new S t a t e Department l e a d e r s h i p i n J a n u a r y which c r i t i c i z e d t h e m u l t i l a t e r a l a g e n c i e s and s t r o n g l y d i s c o u r a g e d f u r t h e r U.S. s u p p o r t f o r t h e MDB program. A f t e r t a k i n g o f f i c e , t h e Reagan A d m i n i s t r a t i o n d e c i d e d t o g i v e i t s s u p p o r t t o t h e e n a c t m e n t o f a package o f World Bank f u n d i n g a u t h o r i z a t i o n s , n o t a b l y U.S. p a r t i c i p a t i o n i n a d o u b l i n g of I B R D capi t a l s t o c k and i n t h e s i x t h r e p l e n i s h m e n t o f I D A r e s o u r c e s . During t h e subsequent n e g o t i a t i o n s for a seventh replenishment o f t h e IDA, t h e A d m i n i s t r a t i o n pursuaded t h e o t h e r d o n o r s t o s u p p o r t a much s m a l l e r r e p l e n i s h m e n t ($9 b i l l i o n over t h r e e y e a r s , which t h e A d m i n i s t r a t i o n s a i d was t h e maximm i t c o u l d s u p p o r t , compared t o t h e $16 b i l l i o n recanmended by t h e World Bank and t h e $12 b i l l i o n endorsed by t h e European d o n o r s ) t h a n t h e y m i g h t o t h e r w i s e have p r e f e r r e d . In i t s p u b l i c announcements and i t s own i n t e r n a l p l a n n i n g documents, t h e Administrat i o n seemed t o r e s e r v e judgment o n f u t u r e U.S. c o n t r i b u t i o n s t o t h e World Bank and t h e o t h e r a g e n c i e s . N e v e r t h e l e s s , t h e United S t a t e s t o o k a n a c t i v e r o l e i n MDB a f f a i r s d u r i n g t h i s p e r i o d and t h e Reagan A d m i n i s t r a t i o n made many s t a t e m e n t s e x p r e s s i n g s u p p o r t f o r t h e work and t h e g o a l s o f t h e m u l t i l a t e r a l b a n k s . ." At t h e 1985 a n n u a l meeting o f t h e World Bank and IMF i n S e o u l , t h e A d m i n i s t r a t i o n announced a s h i f t i n i t s p o s t u r e towards t h e m u l t i l a t e r a l d e v e l o p n e n t b a n k s . T r e a s u r y S e c r e t a r y Baker o u t l i n e d a p l a n whereby t h e World Bank m u l d t a k e t h e l e a d i n managing a c o o r d i n a t e d r e s p o n s e t o t h e i n t e r n a t i o n a l d e b t c r i s i s . P r e v i o u s l y , t h e Administrat i o n had focused on t h e IMF a s t h e main i n t e r n a t i o n a l v e h i c l e f o r d e a l i n g w i t h d e v e l o p i n g c o u n t r y d e b t problems. The Baker p l a n c a l l e d f o r a $20 b i l l i o n i n c r e a s e i n l e n d i n g by t h e World Bank and t h e I n t e r American Development Bank, i n 1986-9. It a l s o e n v i s i o n e d a c o r r e s ponding $20 b i l l i o n i n c r e a s e i n commercial bank l o a n s t o t h e d e b t o r c o u n t r i e s and a c o n c e r t e d World Bank e f f o r t t o e n c o u r a g e economic p o l i c y r e f o r m i n t h o s e c o u n t r i e s . Baker d i d n o t i n d i c a t e whether t h e United S t a t e s would s u p p o r t an i n c r e a s e i n World Bank c a p i t a l s t o c k t o b a c k t h i s i n c r e a s e d I B R D l e n d i n g , though many a n a l y s t s b e l i e v e a capi t a l s t o c k i n c r e a s e i s i n e v i t a b l e . The T r e a s u r y Department d i d s i g n a l , t h o u g h , i n i t s c o n s u l t a t i o n s w i t h C o n g r e s s , t h a t i t was w i l l i n g t o supp o r t a $12 b i l l i o n e x p a n s i o n o f t h e I D A under c e r t a i n c i r c u m s t a n c e s -- when n e x t round o f I D A r e p l e n i s h m e n t t a l k s began l a t e r i n 1986. -- There seem t o b e t h r e e f u n d a m e n t a l r e a s o n s f o r t h i s a p p a r e n t s h i f t from r e t r e n c h m e n t t o e x p a n s i o n a s t h e b a s i c theme f o r U.S. p o l i c y t o w a r d s t h e m u l t i l a t e r a l b a n k s . F i r s t , t h e Reagan A d m i n i s t r a t i o n had accomplished i t s g o a l o f r e d u c i n g t h e r e l a t i v e s i z e o f t h e MDB program. The p r o p o r t i o n o f U.S. f o r e i g n economic a i d g o i n g t o m u l t i l a t e r a l banks f e l l from 25 p e r c e n t i n 1980 t o 17 p e r c e n t i n t h e A d m i n i s t r a t i o n ' s 1987 b u d g e t r e q u e s t . The amounts t a r g e t e d f o r b i l a t e r a l aid increased s u b s t a n t i a l l y . Second, t h e growing s e r i o u s n e s s o f t h e world d e b t c r i s i s engend e r e d a new i n t e r e s t i n t h e i n t e r n a t i o n a l f i n a n c i a l i n s t i t u t i o n s . The United S t a t e s t o o k m a j o r s t e p s u s i n g b i l a t e r a l r e s o u r c e s t o h e l p s h o r e up Mexico's economy a f t e r t h a t c o u n t r y e x p e r i e n c e d n e a r economic c o l l a p s e and i n t e r n a t i o n a l b a n k r u p t s y i n 1982. When i t became c l e a r t h a t t h e d e b t c r i s i s was more widespread and t h a t i t i n v o l v e d a h o s t o f c o u n t r i e s i n t h e d e v e l o p i n g w o r l d , t h e United S t a t e s f i n a l l y a g r e e d with t h e o t h e r developed c o u n t r i e s t h a t concerted a c t i o n should b e t a k e n t h r o u g h t h e IMF t o d e a l w i t h t h e problem. Thus, i n 1983, t h e A d m i n i s t r a t i o n n e g o t i a t e d w i t h o t h e r c o u n t r i e s , and p u r s u a d e d C o n g r e s s t o r a t i f y , a n i n t e r n a t i o n a l agreement which c a l l e d f o r a $ 4 5 b i l l i o n i n c r e a s e i n t h e IMF's f i n a n c i a l r e s o u r c e s . Sane $8.4 b i l l i o n o f t h a t was t o c a n e from t h e United S t a t e s . P e r s i s t e n t c r i t i c i s m o f t h e t e r m s o f t h e PIF ' s " r e s c ue" packages 1ed t o a r e c o g n i t i o n , however , t h a t t h e d e b t o r c o u n t r i e s ' problems c o u l d n o t r e a l l y b e s o l v e d w i t h i n t h e 3 t o 5 year t i m e p e r i o d s normal f o r M F a s s i s t a n c e p l a n s . A n a l y s t s i n s i d e and o u t s i d e o f t h e government came t o a g r e e t h a t a l o n g e r timeframe was n e c e s s a r y , and t h a t long-term g r o w t h , r a t h e r t h a n s h o r t t e r m a u s t e r i t y , had t o b e t h e prime f o c u s o f f u t u r e a d j u s t m e n t p l a n s . These c o n c e r n s l e d t o a new emphasis on t h e World Bank, a s i t seemed t h e more a p p r o r i a t e body f o r a l o n g t e r m e n d e a v o r aimed a t s t i m u l a t i n g p o l i c y a d j u s t m e n t and economic g r o w t h i n t h e d e v e l o p i n g m r l d . T h i r d , t h e A d m i n i s t r a t i o n began t a k i n g a new i n t e r e s t i n t h e World Bank b e c a u s e o f t h e Bank's new emphasis on t h e need f o r economic p o l i c y r e f o r m and more r e l i a n c e o n m a r k e t economic p r i n c i p l e s i n d e v e l o p i n g c o u n t r i e s . Most a n a l y s t s b e l i e v e t h e Bank's new emphasis o n p o l i c y i s s u e s and economic a d j u s t m e n t was a n i n d e p e n d e n t a d a p t a t i o n s p u r r e d by i t s own i n t e r p r e t a t i o n of w r l d d e v e l o p m e n t s . They n o t e t h a t many o f t h e key a s p e c t s o f t h a t p o l i c y began t o t a k e s h a p e i n 1979 and 1 9 8 0 , b e f o r e t h e c u r r e n t U . S. a d m i n i s t r a t i o n t o o k o f f i c e . I n any c a s e , t h e World Bank's new e m p h a s i s o n economic p o l i c y i s s u e s -- and a l s o i t s s t r e s s on t h e need f o r a t t e n t i o n t o t h e n e e d s o f t h e p a r a 1 l e l e d many o f t h e Reagan A d m i n i s t r a t i o n ' s African countries own c o n c e r n s i n t h e s e a r e a s . These h e l p e d t o make t h e Bank more a c c e p t a b l e t o t h o s e i n t h e A d m i n i s t r a t i o n who had p r e v i o u s l y h a r b o r e d r e s e r v a t i o n s when t h e d i s c u s s i o n t u r n e d ( i n 1984-5) t o w a r d s t h e i d e a o f u s i n g t h e Bank ( r a t h e r t h a n t h e Fund) a s t h e f u l c r u m of a new i n t e r n a t i o n a l s t r a t e g y t o c o p e w i t h t h e problems of Third World d e b t . --